The impact of a firm's cost of capital on managerial decisions Consider the following case: Lancashire Railway Company (URC) has two divisions, Land H. Division is the company's low-risk division and would have a weighted average cost of capital of 8% if it was operated as an independent company, Division 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 two divisions are the same size, the company has a composite weighted average cost of capital of 11%. Division is considering a project with an expected return of 9.5% a Should Lancashire Railway Company (LRC) accept or reject the project? Reject the project Accept the project On what grounds do you base your accept-reject decision Division project should be accepted, because its retum is less than the risk-based cost of capital for the division Division project should be accepted since its return is greater than the risk based cost of capital for the division