Firm Globe is a 100% equity financed conglomerate. It has two divisions with equal weights. The first division is the IT Division with a cost of equity of 20%. The second division is the Food Division with a cost of equity of 12%. The firms CFO is now making investment decisions for the projects in these two divisions. (6 points)

a. If the CFO uses firm-wide WACC to guide the investment decision, which divisions project will be overinvested?

A.IT Division.

or

B.Food Division.

b. For the projects that will be invested mistakenly by the CFO (i.e., the projects that should have been forgone but are mistakenly invested by the CFO), what is the range of the IRR of these projects?

A. below 12%.

B.16% to 20%.

C.12% to 16%.

D. above 20%.