Question
A firm with two same sized divisions only uses equity capital with no debt. Division As cost of capital is 10.0%, Division Bs cost is
A firm with two same sized divisions only uses equity capital with no debt. Division As cost of capital is 10.0%, Division Bs cost is 14.0%, and the corporate (composite) WACC is 12.0%. All of Division As projects are equally risky, as are all of Division B's projects. However, the projects of Division A are less risky than those of Division B. Which of the following projects should the firm accept?
Select one:
a. A Division B project with a 12% return.
b. A Division A project with an 11% return.
c. A Division A project with a 9% return.
d. A Division B project with an 11% return.
e. A Division B project with a 13% return.
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