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 4%. 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

C) Cost of capital = Cost of capital for the related division
Cost of capital = 4%