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5 November, 21:40

Verano Inc. has two business divisions long dash a software product line and a waste water clean-up product line. The software business has a cost of equity capital of 12 % and the waste water clean-up business has a cost of equity capital of 8 %. 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?

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  1. 5 November, 22:11
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    appropriate cost of capital to evaluate the business is 8%

    Explanation:

    given data

    cost of equity capital = 12 %

    revenue from software = 50%

    cost of equity capital = 8 %

    to find out

    the appropriate cost of capital

    solution

    we know that

    Cost of capital = cost of capital in same industry or cost of capital in the related division

    so here cost of capital equal to business is 8% so that Cost of capital will be 8%

    hence the appropriate cost of capital to evaluate the business is 8%
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