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Intermountain Resources is a multidivisional company. It hasthree divisions with the follo

Intermountain Resources is a multidivisional company. It hasthree divisions with the follo

Intermountain Resources is a multidivisional company. It hasthree divisions with the following betas and proportion of thefirms total assets:

Division                                        Beta           Proportionof Assets

Natural gaspipelines                 0.70                    50%

Oil and gasproduction               1.20                    30

Oil and gasexploration             1.50                     20

The risk free rate is 7% and the market risk premium is 8%.

a. What is the firms weighted average beta?

b. What required equity rate of return should the firm use foraverage-risk projects in its natural gas pipeline division?

c. What required equity rate of return should the firm use foraverage risk projects in its oil and gas exploration division?

PLEASE SHOW WORK :)

 

Abhinav 04-Dec-2019

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