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Fussy Inc. is composed of two different divisions: food catering and shoe making. The company's ...

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Fussy Inc. is composed of two different divisions: food catering and shoe making. The company's ...

Fussy Inc. is composed of two different divisions: food catering and shoe making. The company's overall WACC is 10%, while the WACC for the food catering division is 9% and for the shoe making division is 12%. What would happen if the company used the overall WACC in the valuation of the following independent projects?

Project	Industry	CF0	Annual CF	Project Life
I	Food catering	$400,000	$125,000	4 years
II	Shoe making	$600,000	$150,000	6 years
III	Shoe making	$500,000	$135,000	5 years
IV	Food catering	$800,000	$170,000	6 years

▸ Incorrectly accept project III and incorrectly reject project IV.

▸ Incorrectly accept projects II and III.

▸ Incorrectly reject projects I and IV.

▸ Incorrectly reject project I and incorrectly accept project III.

Textbook

Corporate Finance

Edition: 5^th

Author: Booth

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