Swizer Industries Has Two Separate Divisions

question 24

Multiple Choice

Swizer Industries has two separate divisions.Division X has less risk so its projects are assigned a discount rate equal to the firm's WACC minus 0.5 percent.Division Y has more risk and its projects are assigned a rate equal to the firm's WACC plus 1 percent.The company has a debt-equity ratio of 0.45 and a tax rate of 35 percent.The cost of equity is 14.7 percent and the aftertax cost of debt is 5.1 percent.Presently,each division is considering a new project.Division Y's project provides a 12.3 percent rate of return and Division X's project provides an 11.64 percent return.Which projects,if any,should the company accept?

• A)Accept both X and Y
• B)Accept X and reject Y
• C)Reject X and accept Y
• D)Reject both X and Y
• E)The answer cannot be determined based on the information provided.

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