Duval IncUses Only Equity Capital,and It Has Two Equally-Sized Divisions

question 63

Multiple Choice

Duval Inc.uses only equity capital,and it has two equally-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?

• A) A Division B project with a 13% return.
• B) A Division B project with a 12% return.
• C) A Division A project with an 11% return.
• D) A Division A project with a 9% return.
• E) A Division B project with an 11% return.

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Definitions:

Defence Mechanism

Psychological strategies unconsciously used to protect a person from anxiety-arising thoughts or feelings.

Subordinate

An individual who is lower in rank or position and is subject to the authority of a supervisor or manager.

Yelled

A loud, often emotional, verbal expression of distress, anger, or demand.

Presenteeism

The phenomenon where employees show up to work even when they are ill or not fully functional, often resulting in reduced productivity.