BAc

Acme Manufacturing Corportaion has two divisions, L and ha. Division L is the company's low-risk division and would have weighted average cost of captial 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 the two divisions are the same size, the company has a composit weighted average cost of captial of 11%. Division H is considering a project with an expected return of 12%.

1) Should Acme manufacturing Corporation accept or reject the project?

a)Reject the Project

b)Accept the Project

2) On what grounds do you base your accept-reject decison?

A) Division h's project should be accepted, as it return is greater than the risk-based cost of capital for the division.

B) Division h's project should be rejected since its return is less than the risk-based cost of capital for the division.