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Bay Co. has three divisions: X, Y, and Z. Division X has the least risk and division Z has the most risk. The firm has
Bay Co. has three divisions: X, Y, and Z. Division X has the least risk and division Z has the most risk. The firm has an after-tax cost of debt of 4.0% and a cost of equity of 12.0%. The firm's Debt- to-Equity (D/E) ratio is 1/3. Management has told the manager of division X that projects in his division will be assigned a discount rate that is 2 percent less than the firm's weighted average cost of capital. What is the discount rate applicable to division X? 8.0 percent O 12.0 percent 6.0 percent O 10.0 percent
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