Bloom and Co. has no debt or preferred stock, it uses only equity capital, and has...
Bloom and Co. has no debt or preferred stock, it uses only equity capital, and has two equally-sized divisions. Division X's cost of capital is 10.0%, Division Y's cost is 14.0%, and the corporate (composite) WACC is 12.0%. All of Division X's projects are equally risky, as are all of Division Y's projects. However, the projects of Division X are less risky than those of Division Y. Which of the following projects should the firm accept?
Group of answer choices:
A) A Division X project with an 11% return.
B) A Division Y project with a 12% return.
C) A Division X project with a 9% return.
D) A Division Y project with an 11% return.
E) A Division Y project with a 13% return.
Homework Answers
Option A
A Division X project with an 11% return should be accepted by the
firm as it provides higher return than its risk adjusted discount
rate of 10%
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