Bloom and Co

question 2

Multiple Choice

Bloom and Co.has no debt or preferred stock⎯it uses only equity capital, and has two equally-sized divisions.Division X's cost of capital is 10.0%, Division Y's cost is 14.0%, and the corporate (composite) WACC is 12.0%.All of Division X's projects are equally risky, as are all of Division Y's projects.However, the projects of Division X are less risky than those of Division Y.Which of the following projects should the firm accept?

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

Comprehend the short-run and long-run impacts on profits and firm behavior in competitive industries following changes in market demand.

Understand the mechanics of mean reversion in economic profits and how it affects long-term industry equilibrium.

Master the concept of elasticity of demand and how it reflects on pricing strategies and consumer behavior.

Recognize the unique position of monopoly firms in the market, their profit-making capabilities, and the factors contributing to their long-run profit sustainability.

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Definitions:

Four-Speed

Describes a transmission or gearbox with four distinct gear ratios.

Hydromechanical Transmission

A combination of hydraulic and mechanical systems in a transmission to transfer power from the engine to the wheels.

Fourth Clutches

Clutches within an automatic transmission that engage and disengage the fourth gear, contributing to the vehicle's gear shifting process.

Reverse Output

The output or result that is in the opposite direction to what is expected or standard.