Benson’s, Inc has an overall cost of equity of 10.24 percent and a bet

Benson’s, Inc has an overall cost of equity of 10.24 percent and a beta of 1.2. The firm is financed 100 percent with common stock. The risk-free rate of return is 4 percent.

What is an appropriate cost of capital for a division within the firm that has an estimated beta of 1.5?
A) 11.6 percent
B) 11.8 percent
C) 12.0 percent
D) 12.4 percent
E) 12.8 percent

ANSWER

B