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t View History Bookmarks People Window Help MindTap Cengage Learning b ng cengage.com/static/nbluilindex 4738028595484 Mind Tap Assignment 10-The Cost of Capital 8 Due Today 1159 CDT The impact of cost of capital on managerial decisions Consider the following case: Hintze Co. has two divisions, Land H. Division Lis the company's low-risk division and would have a wACC of 8% if it were operated as an independent company. Division His the company's high-risk division and would have a WACC of 14% if it were operated as an independent company. Because the two divisions are the same size, the company has a composite WACC of 11%, Division His considering a project with an expected return of 12%. Should Hintze Co. accept or reject the project? O Reject Q Accept on what grounds do you base your accept-reject decision? Q Division H's project should be rejected, because its return is less than the risk based cost of capital forthe O Division H's project should be accepted, because its return is greater than the risk-based cost of capital for the arterly payments at E MacBook Pro

Explanation / Answer

Hintze Co. should reject the project.

Division H's project should be rejected because its return(12%) is less than the risk based cost of capital(14%) for that division.

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