Question

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?

Question 12 options:

	A Division project with a 12% return.
	A Division Y project with an 11% return.
	A Division project with a 9% return.
	all of the above
	none of the above

Answer 1

Company should accept the project when return on project in particular division is greater than that division's cost of capital .

Hence ,A division X project with 12 % return should be accepted .

Explanation:-

A division Y project with 11% return should not be accepted because its cost of capital is 14 % which is greater than its return

And when a division is having 9 % return then project should not be accepted in case of both divisions because both division are having cost of capital greater than 9 %