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Kellogg Inc. currently has a capital structure of 60 percent debt and 40 percent equity,...

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Finance

Kellogg Inc. currently has a capital structure of 60 percent debt and 40 percent equity, but is considering a new product that will be produced and marketed by a separate division. The new division will have a capital structure of 65 percent debt and 35 percent equity. Kellogg has a current beta of 3.4, but is not sure what the beta for the new division will be. AECOM Corporation is a firm that produces a product similar to the product under consideration by Kellogg. AECOM has a beta of 3.3, a capital structure of 70 percent debt and 30 percent equity and a marginal tax rate of 35 percent. Kellogg's tax rate is 40 percent. What will be Kellogg's weighted average cost of capital for this new division if the after-tax cost of debt is 11 percent, the risk-free rate is 6 percent, and the market risk premium is 13 percent? Question 25 options:

21.86%

19.00%

16.04%

25.41%

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