Verano Inc.has two business divisions - a software product line and a waste water clean-up product line.The software business has a cost of equity capital of 11% and the waste water clean-up business has a cost of equity capital of 6%.Verano has 50% of its revenue from software and the rest from the waste water business.Verano is considering a purchase of another company in the waste water business using equity financing.What is the appropriate cost of capital to evaluate the business?

Question

Quizplus · Accepted Answer

The appropriate cost of capital to evaluate the purchase in the waste water business is 6%, as it matches the cost of equity capital for that specific line of business.