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?

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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