Question

How would i go about finding the hurdle rate of both the Food Processing and Instruments divisions if im unsure of the risk premium of each division?

-110.3 ) 4.170 1 Chestnut Foods WACC Calculation 3 Food Processing: 4 Rd 5 Re 2.58% 6.64% Instruments: 2.90% <--(1-B11)*4.6% 9.65% <--B9+C12*B10 WACC 5.6375% 8.0831% <--B13*C5+B14*C4 9 Rf 10 Market Risk Premiu 11 Tax Rate 12 Average Beta: 13 We 14 Wd 2.8% 6% 37% 0.64 0.8 0.2 1.14 5.64% 8.08%

Answer 1

	Food Processing	Instruments
Rf	2.80%	2.80%
Market Risk Premium	6%	6%
Tax Rate	37%	37%
Average Beta	0.64	1.14
We	0.8	0.8
Wd	0.2	0.2
	Food Processing	Instruments
Cost of equity = Rf + beta x mrp	6.64%	9.64%
Cost of Debt after Tax	2.58%	2.90%
WACC (Hurdle Rate) = D/D+E * Cost of after tax debt + E/D+E * Cost of Equity
WACC = Hurdle Rate	5.83%	8.29%