Author Question: If a firm applies its overall cost of capital to all its proposed projects, then the divisions ... (Read 30 times)

darbym82 · **on:** Apr 25, 2021

Question 1

For a firm with multiple business units, the cost of capital developed for each unit is called a
◦ divisional cost of capital.
◦ pure play approach.
◦ subjective risk adjustment.
◦ stratified beta coefficient.
◦ fundamental beta coefficient.

Question 2

If a firm applies its overall cost of capital to all its proposed projects, then the divisions within the firm will tend to
◦ receive more funding if they represent the riskiest operations of the firm.
◦ avoid risky projects so that they will receive more funding.
◦ become less risky over time based on the projects that are accepted.
◦ have equal probabilities of receiving funding for their projects.
◦ propose less risky projects than if separate discount rates were applied to each project.

shewald78 · **Reply #1 on:** Apr 25, 2021

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