Two separate division-discount rate equal to the firm wacc

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Reference no: EM131354047

Swizer Industries has two separate divisions. Division X has less risk so its projects are assigned a discount rate equal to the firm's WACC minus .75 percent. Division Y has more risk and its projects are assigned a rate equal to the firm's WACC plus 1 percent. The company has a debt-equity ratio of .48 and a tax rate of 34 percent. The cost of equity is 15.4 percent and the aftertax cost of debt is 5.4 percent. Presently, each division is considering a new project. Division Y's project provides a return of 12.9 percent while Division X's project is expected to earn 11.5 percent. Which project(s), if any, should the company accept?

Accept both X and Y

Accept X and reject Y

Reject X and accept Y

Reject both X and Y

Reference no: EM131354047

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