Anderson Animations Corporation $($AAC$)$ has two divisions, L and H$.$ Division L is the company$$s low$-$risk division and would have a weighted average cost of capital of $8\%$ if it was operated as an independent company. Division H is the company$$s high$-$risk division and would have a weighted average cost of capital of $14\%$ if it was operated as an independent company. Because the two divisions are the same size, the company has a composite weighted average cost of capital of $11\%.$ Division H is considering a project with an expected return of $12\%.$

Should Anderson Animations Corporation $($AAC$)$ accept or reject the project?

Accept the project

Reject the project

On what grounds do you base your accept$$reject decision?

Division H$$s project should be accepted, as its return is greater than the risk$-$based cost of capital for the division.

Division H$$s project should be rejected since its return is less than the risk$-$based cost of capital for the division