Finance – Cost of Capital

Finance – Cost of Capital

Bloom and Co. has no debt or preferred stockit 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?

a.A Division Y project with a 12% return.

b.A Division X project with an 11% 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.

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