QUESTION 1 0.25 points Save Answer Duval Inc. uses only equity capital, and it h

Question

QUESTION 1 0.25 points Save Answer Duval Inc. uses only equity capital, and it has two eqully-sized divisions, Division A's cost of capital is 10.0%, Division B's cost is 14.0%, and the corporate (composite) WACC is 12.0%. All of Division A's projects are equally risky, as are all of Division B's projects. However, the projects of Division A are less risky than those of Division B. Which of the following projects should the firm accept? OA, A Division B project with a 13% return OB. A Division B project with a 12% return OC. A Division A project with an l 1% return D.A Division A project with a 9% return O E, A Division B project with an 1 1% return

Explanation / Answer

In order to select a particular projects, its rate of return should be greater than the risk-adjusted WACC. The risk-adjusted WACC for A is 10% and for B is 14%. Hence, we need to select a project from Division A with return greater than 10% or from Division B with return greater than 14%

Hence, C is the correct answer.

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