Question
Duval Inc. uses only equity capital, and it has two equally-sized divisions. Division As cost of capital is 10.0%, Division Bs cost is 14.0%, and
Duval Inc. uses only equity capital, and it has two equally-sized divisions. Division As cost of capital is 10.0%, Division Bs cost is 14.0%, 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 accept?
| a. | A Division B project with a 15% return. |
| b. | A Division B project with a 12% return. |
| c. | A Division A project with an 9.5% return. |
| d. | A Division A project with a 8% return. |
| e. | A Division B project with an 11% return. |
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