Under what circumstances would it be appropriate for a firm to use different costs of capital for its different operating divisions? If the overall firm WACC were used as the hurdle rate for all...

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Under what circumstances would it be appropriate for a firm to use different costs of capital for its different operating divisions? If the overall firm WACC were used as the hurdle rate for all divisions, would the riskier divisions or the more conservative divisionstend to get most of the investment projects? Why? If you were to try to estimate the appropriate cost of capital for different divisions, what problems might you encounter? What aretwo techniques you could use to develop a rough estimate for each division’s cost of capital?
Answered Same DayDec 20, 2021

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David answered on Dec 20 2021
3 Votes
Under what circumstances would it be appropriate for a firm to use different costs of capital for its
different operating divisions? If the overall firm WACC were used as the hurdle rate for all divisions,
would the riskier divisions or the more conservative divisions tend to get most of the investment
projects? Why? If you were to try to estimate the appropriate cost of capital for different divisions, what
problems might you encounter? What are two techniques...
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