Northern Conglomerate has two divisions, Division A and Division B. Northern looks at competing pure-play firms to estimate the betas of each of the two divisions. After this analysis, Northern concludes that Division A has a beta of 0.9 and Division B has a beta of 1.6. The two divisions are the same size. The risk-free rate is 5.00% and the market risk premium is 5.80%. Assume that Northern is 100% equity financed. What is the overall composite WACC for Northern Conglomerate?
A. 12.86%
B. 14.09%
C. 12.25%
D. 11.64%
E. 10.41%
Answer: C
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