Mcfann co has two divisions l and h division l is the, Ask an Expert

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McFann Co. has two divisions, L and H. Division L is the company's low-risk division and would have a WACC of 8% if it were operated as an independent company. Division H is the company's high-risk division and would have a WACC of 14% if it were operated as an independent company. Because the two divisions are the same size, the company has a composite WACC of 11%. Division H is considered a project with an expected return of 12%. Should McFann Co. accept or reject the prject?

A. Accept

B. Reject

On what grounds do you base your accept-reject decision?

A. Division H's project should be accepted, because its return is greater than the risk-based cost of capital for the division.

B. Division H's project should be rejected, because its return is less than the risk-based cost of capital for the division.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91416740

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