Work shown

Division Asset Beta Next Period’s Expected Free Cash Flow ($mm) Expected Growth rate

Oil Exploration 1.4 450 4.0%

Oil Refining 1.1 525 2.5%

Gas & Convenience Stores 0.8 600 3.0%

The risk free rate of interest is 3% and the market risk premium is 5%. what is the cost of capital for the oil refining division closest to?

A) 6.5%

B) 7.0%

c) 8.5%

D) 10.0%