Discuss the below:
Answer the question with citation and reference
-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 a 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 the two techniques you would use to develop a rough estimate for each division's cost of capital?