Bloom and Co

question 2

Multiple Choice

Bloom and Co.has no debt or preferred stock⎯it uses only equity capital, and has two equally-sized divisions.Division X's cost of capital is 10.0%, Division Y's cost is 14.0%, and the corporate (composite) WACC is 12.0%.All of Division X's projects are equally risky, as are all of Division Y's projects.However, the projects of Division X are less risky than those of Division Y.Which of the following projects should the firm accept?

• A) A Division Y project with a 12% return.
• B) A Division X project with an 11% return.
• C) A Division X project with a 9% return.
• D) A Division Y project with an 11% return.
• E) A Division Y project with a 13% return.

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Definitions:

Constant

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