ECRI Corporation is a holding company with four main subsidiaries. The percentage of its capital invested in each of the subsidiaries (and their respective betas) are as follows: Subsidiary Percentage of Capital Beta Electric utility 60% 0.70 Cable company 25 0.90 Real estate development 10 1.30 International/special projects 5 1.50 a. What is the holding company’s beta? b. If the risk-free rate is 4% and the market risk premium is 5%, what is the holding company’s required rate of return?

ECRI Corporation is a holding company with four main subsidiaries. The percentage of its capital invested in each of the subsidiaries (and their respective betas) are as follows: Subsidiary Percentage of Capital Beta Electric utility 60% 0.70 Cable company 25 0.90 Real estate development 10 1.30 International/special projects 5 1.50 a. What is the holding company’s beta? b. If the risk-free rate is 4% and the market risk premium is 5%, what is the holding company’s required rate of return?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter13: Capital Structure Concepts

Section: Chapter Questions

Problem 5P

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