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:

Full Cost

The total cost of a product or service, including all direct and indirect expenses.

Waiting Line Terminology

The set of terms and concepts used to describe and analyze the characteristics and behavior of waiting lines or queues in various contexts.

Costs Vary

An expression indicating that expenses can change based on factors such as production volume, time, and market conditions.

Level of Service

A measure of the quality of service provided, often used in the context of public transportation or customer service, indicating efficiency, responsiveness, and satisfaction.