Assume that your firm consists of Division 1 (40 percent of the firm) and Division 2 (60 percent of the firm). The capital structure for each of the divisions is the same as for the firm as a whole; 20.0 percent debt, at a before-tax cost of debt of 6.0 percent, and 80.0 percent equity (i. e., D/E-0.25). Also assume that the firm calculates the cost of equity for each division using a divisional beta, where Division 1 has an unlevered beta of 1.20, while Division 2 has an unlevered beta of 1.46. Finally assume that the risk-free rate is 4.0 percent and the expected return on the market is 12.0 percent, and the firm's tax rate is 40%. Given this information, determine the difference between the WACC for Division 1 and the WACC for Division 2 Answer in decimal format, rounded to 4 decimal places. For example, if your answer is 1.334%, enter "O. 0133"
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Home » Business » Assume that your firm consists of Division 1 (40 percent of the firm) and Division 2 (60 percent of the firm). The capital structure for each of the divisions is the same as for the firm as a whole; 20.