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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Definitions:

RAD

Rapid Application Development, a software development methodology that emphasizes quick prototype releases and iterations to expedite development and elicit early user feedback.

Prototypes

Preliminary models of products or systems used for testing and evaluation during the development process.

End-user Development

The practice allowing non-programmers to create or modify software applications to meet their personal or business needs without extensive knowledge of programming.

Security

The degree of protection against criminal activity, danger, damage, or loss.