Which of These Statements Is True Regarding Divisional WACC

question 109

Multiple Choice

Which of these statements is true regarding divisional WACC?

• A) Using a divisional WACC versus a WACC for the firm's current operations will result in quite a few incorrect decisions.
• B) Using a simple firmwide WACC to evaluate new projects would give an unfair advantage to projects that present more risk than the firm's average beta.
• C) Using a simple firmwide WACC to evaluate new projects would give an unfair advantage to projects that present less risk than the firm's average beta.
• D) Using a firmwide WACC to evaluate new projects would have no impact on projects that present less risk than the firm's average beta.

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Definitions:

Absorption Costing

An accounting method that assigns all manufacturing costs, both variable and fixed, to products.

Special Order Decisions

These are considerations made by businesses to accept or decline an order from a customer that is not part of the company's standard line of production or services, often involving unique pricing or costs.

Short-Term Pricing

The strategy or approach to setting prices for goods or services with a focus on immediate or near-future objectives.

Absorption Costing

An accounting method that includes all manufacturing costs, both direct and indirect, in the cost of a product, thereby fully absorbing overhead.