Bob’s Tractor and Party Supply has two separate divisions: party suppl

Bob’s Tractor and Party Supply has two separate divisions: party supplies, and tractor supplies and services.

The party supply division has a beta of 1.2 and is financed by 25% debt. The tractor supply and service division has a beta of 0.8 and is financed by 60% debt. The cost of debt for each division is 5%. The risk free rate and market rate are 5% and 10% respectively. A project has recently become available for each division with an expected return of 10%. Which division(s) should take on the project?
A) Party Supply
B) Tractor Supply and Services
C) Both
D) Neither

ANSWER

B