Bloom and Co

Bloom and Co. has no debt or preferred stockσit 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.

Correct Answer:

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