a. Gentle corporation has two divisions of equal size. Division A has a beta of 0.93, division B has a beta of 1.57. The company has no debt. The cost of capital for the entire corporation is 16%. Which of the two divisions have a lower cost of capital? Explain.

b. Barrack mining uses a cost of capital of 11 % to evaluate an average risk project. It adds or subtracts 3% from its WACC to adjust for risk. Currently the firm has two mutually exclusive projects under consideration. Both the projects have an initial cost of $100,000 and will last 4 years. Project A , riskier than the average will produce an annual cash flow of $72,164 at the end of each year. Project B is less than average risk and will produce cash flows of $145,340 at the end of years 3 and 4 only. Which investment should the firm choose? Explain