Marston Manufacturing Company has two divisions, L and H. Division L is the company's low-risk division and would have a weighted average cost of capital of 8% if it was operated as an independent company. Division H is the company's high-risk division and would have a weighted average cost of capital of 14% if it was operated as an independent company. Because the two divisions are the same size, the company has a composite weighted average cost of capital of 11%. Division L is considering a project with an expected return of 9.5%. Should Marston Manufacturing Company accept or reject the project? Group of answer choices Reject the project since the expected return of the project is less than the WACC of the division Accept the project since the WACC of the division is greater than the expected return Reject the project since the WACC of the division is lower than the expected return of the project Accept the project since the expected return is greater than the WACC of the division
Marston Manufacturing Company has two divisions, L and H. Division L is the company's low-risk division and would have a weighted average cost of capital of 8% if it was operated as an independent company. Division H is the company's high-risk division and would have a weighted average cost of capital of 14% if it was operated as an independent company. Because the two divisions are the same size, the company has a composite weighted average cost of capital of 11%. Division L is considering a project with an expected return of 9.5%. Should Marston Manufacturing Company accept or reject the project? Group of answer choices Reject the project since the expected return of the project is less than the WACC of the division Accept the project since the WACC of the division is greater than the expected return Reject the project since the WACC of the division is lower than the expected return of the project Accept the project since the expected return is greater than the WACC of the division
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Marston Manufacturing Company has two divisions, L and H. Division L is the company's low-risk division and would have a weighted average cost of capital of 8% if it was operated as an independent company. Division H is the company's high-risk division and would have a weighted average cost of capital of 14% if it was operated as an independent company. Because the two divisions are the same size, the company has a composite weighted average cost of capital of 11%. Division L is considering a project with an expected return of 9.5%.
Should Marston Manufacturing Company accept or reject the project?
Group of answer choices
Reject the project since the expected return of the project is less than the WACC of the division
Accept the project since the WACC of the division is greater than the expected return
Reject the project since the WACC of the division is lower than the expected return of the project
Accept the project since the expected return is greater than the WACC of the division
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