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%.