Northern Conglomerate Has Two Divisions,Division a and Division B

question 3

Multiple Choice

Northern Conglomerate has two divisions,Division A and Division B.Northern looks at competing pure-play firms to estimate the betas of each of the two divisions.After this analysis,Northern concludes that Division A has a beta of 0.8 and Division B has a beta of 1.6.The two divisions are the same size.The risk-free rate is 5.00% and the market risk premium is 7.00%.Assume that Northern is 100% equity financed.What is the overall composite WACC for Northern Conglomerate? Do not round your intermediate calculations.

• A) 12.73%
• B) 14.07%
• C) 13.40%
• D) 10.05%
• E) 15.41%

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