Global Exchange Has Three Divisions: A, B, and C

question 73

Multiple Choice

Global Exchange has three divisions: A, B, and C. Division A has the least risk and division C has the most risk. The firm has an aftertax cost of debt of 6.1 percent and a cost of equity of 14.3 percent. The firm is financed with 35 percent debt and 65 percent equity. Division A's projects are assigned a discount rate that is 2 percent less than the firm's weighted average cost of capital. What is the discount rate applicable to division A?

• A) 7.98 percent
• B) 8.27 percent
• C) 9.43 percent
• D) 11.48 percent
• E) 13.43 percent

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