PROFILE ORDERS RENTALS B EI COURSES Study Tools V The effect the tax rate on the...

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PROFILE ORDERS RENTALS B EI COURSES Study Tools V The effect the tax rate on the cost of debt in the weighted average cost of capital equation The firm's capital structure The im of a firm's cost of capital on managerial decisions Conside ollowing case: Lancashire Railway Company (LRC) 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%. College Success ups Career Success Tips ? Help Should Lancashire Railway Company (LRC) accept or reject the project? Reject the project Accept the project On what grounds do you base your accept-reject decision? SIGN OUT Division L's project should be accepted, since its return is greater than the risk-based cost of capital for the division. Division L's project should be accepted, because its return is less than the risk-based cost of capital for the division. Grade It Now Save & Continue Continue without saving PROFILE ORDERS RENTALS B EI COURSES Study Tools V The effect the tax rate on the cost of debt in the weighted average cost of capital equation The firm's capital structure The im of a firm's cost of capital on managerial decisions Conside ollowing case: Lancashire Railway Company (LRC) 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%. College Success ups Career Success Tips ? Help Should Lancashire Railway Company (LRC) accept or reject the project? Reject the project Accept the project On what grounds do you base your accept-reject decision? SIGN OUT Division L's project should be accepted, since its return is greater than the risk-based cost of capital for the division. Division L's project should be accepted, because its return is less than the risk-based cost of capital for the division. Grade It Now Save & Continue Continue without saving