Sunshine Inc

question 3

Multiple Choice

Sunshine Inc.has two equally-sized divisions.Division A has a beta of 0.8 and Division B has a beta of 1.2.The company is 100% equity financed.The risk-free rate is 6% and the market risk premium is 5%.Sunshine assigns different hurdle rates to each division based on each division's market risk.Which of the following statements is CORRECT?

• A)Sunshine's composite WACC is 10%.
• B)Division B has a lower WACC than Division A.
• C)If the same WACC is used for each division, the firm would select too many Division A projects and reject too many Division B projects.
• D)If the same WACC is used for each division, the firm would select too many Division B projects and reject too many Division A projects.
• E)Sunshine's composite WACC is 12%.

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Definitions:

Unemployment Rates

The percentage of the labor force that is jobless and actively seeking employment.

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The stages or degrees of formal learning individuals obtain, ranging from primary education to higher education and beyond.

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A prominent American sociologist renowned for his research on urban sociology, race, and class in the United States.

Reparations

Compensation given for abuse or injury, often discussed in the context of compensating the descendants of enslaved Africans in the Americas and elsewhere.