Bob's Tractor and Party Supply Has Two Separate Divisions: Party

question 77

Multiple Choice

Bob's Tractor and Party Supply has two separate divisions: party supplies,and tractor supplies and services.The party supply division has a beta of 1.2 and is financed by 25% debt.The tractor supply and service division has a beta of 0.8 and is financed by 60% debt.The cost of debt for each division is 5%.The risk free rate and market rate are 5% and 10% respectively.A project has recently become available for each division with an expected return of 10%.Which division(s) should take on the project?

• A) Party Supply
• B) Tractor Supply and Services
• C) Both
• D) Neither

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Definitions:

Business Plan

A formal written document that describes the nature of a business, its objectives, strategies, market, financial forecasts, and management team.

Professional-Looking Copy

Written material, such as documents, advertisements, or digital content, that is presented in a polished, formal manner conducive to professional standards.

Word-Of-Mouth Advertising

is a free form of promotion resulting from satisfied customers personally recommending a product or service to friends, family, or acquaintances.

Business Plan

A detailed document outlining a company's objectives, strategies, financial forecasts, and market analysis, serving as a roadmap for business development.