Question
Chap Inc. uses only equity capital, and it has two equally-sized divisions. Division As cost of capital is 8%, Division Bs cost is 12%, and
Chap Inc. uses only equity capital, and it has two equally-sized divisions. Division As cost of capital is 8%, Division Bs cost is 12%, 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 NOT to accept? A. A Division B project with a 14% return. B. A Division B project with a 10% return. C. A Division A project with a 10% return. D. A Division A project with a 9% return.
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