Purchase Solution

WACC and decision making: Which of the projects should Basu accept?

Not what you're looking for?

Ask Custom Question

Basu Inc. uses only equity capital, and it has two equally-sized divisions. Division A's cost of capital is 10.0%, Division B's cost is 14.0%, and the composite WACC is 12.0%. All of Division A's projects have the same risk, and all Division B projects are also equally risky. However, the projects in Division A do not have the same risk as those in Division B.

Which of the following projects should Basu accept?

Purchase this Solution
Solution Summary

The solution anaylsis two equally-sized divisions using WACC.

Solution Preview

The WACC represents the rate at which projects will start generating shareholder's value. It is the weighted average cost of capital though and if a company is treated as a portfolio of projects, then the WACC is a reflection of all activities and risks inherent in the company's businesses. Furthermore, the WACC is not constant over time. Among other factors, the WACC ...

Purchase this Solution
Free BrainMass Quizzes
Organizational Behavior (OB)

The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.

Writing Business Plans

This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.

Academic Reading and Writing: Critical Thinking

Importance of Critical Thinking

Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.

View More Free Quizzes
Related BrainMass Solutions

  • Payback method for capital budgeting decisions

    Other things held constant, which of the following statements is most likely to be true? a. It will accept too many short-term projects and reject too many long-term projects (as judged by the NPV). b.

  • MCQs on Cost of Capital

    Which of the following projects (A, B, and C) should the company accept? a. Project B, which is of below-average risk and has a return of 8.5%. b.

  • IRR, MIRR, and Discounted Cashflow

    Its IRR is more than WACC and PI is also positive. 2nd Project One can accept the project as NPV is $3,86,92,769 which is indicating positive value addition by the project. Its IRR is more than WACC and PI is also positive.

  • Accept/Reject Decision Under the IRR Method

    361367 Accept/Reject Decision Under the IRR Method An increase in the firm's WACC will decrease projects' NPVs, which could change the accept/reject decision for any potential project. However, such a change would have no impact on projects' IRRs.

  • Projects After-Tax Cash Flows

    If the two projects are mutually exclusive and the WACC is 10 percent, which projects should be chosen? Mutually exclusive Project NPV Decision A $7.74 Accept because its NPV is the highest B $6.55 Reject d.

  • Evaluating projects: market risk and decision making

    Think unlevered Beats, WACC, NOV, cost of equity..etc 1) Identify the projects Ponza International should accept. Explain. Think NPV and returns.

  • Capital Project Analysis, Market, WACC, Cost of Capital

    The intrinsic value will not be maximized because the decision-making could be wrong, which will cause the firm to lose value. capital project analysis

  • Wagner Inc.

    Which of the following projects (A, B, and C) should the company accept?

  • Calculating/determining: a portfolio's beta, price of a stock and more...

    Which of the following projects (A, B, and C) should the company accept? Project A is of average risk and has a return of 9%. Project B is of below-average risk and has a return of 8.5%.

View More Related Solutions