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    Brandon Inc. consists of 2 divisions of equal size, and Brandon is 100 percent equity financed. Division A cost of equity capital is 9.8 percent, while Division B cost of equity capital is 14 percent. Brandon's composite WACC is 11.9 percent. Assume that all Division A projects have the same risk and that all Division B projects have the same risk. However, the projects in Division A are not the same risk as those in Division B. Which of the following projects should Brandon accept?

    a. Division A project with an 11 percent return.
    b. Division B project with a 12 percent return.
    c. Division B project with a 13 percent return.
    d. Statements a and c are correct.
    e. all are correct.


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    Solution Preview

    Answer: a. Division A project with an 11 percent return.

    Only projects with positive NPV should be selected. Projects will have a positive NPV only when the project has a ...

    Solution Summary

    Answer to a multiple choice question on WACC.