A Firm Has Multiple Divisions of Similar Nature, Yet Varying

question 1

Multiple Choice

A firm has multiple divisions of similar nature, yet varying degrees of risk.Which one of the following would be the most appropriate, yet relatively easy, means of assigning discount rates to each of its numerous proposed investments?

• A)Assign every project a rate equal to the firm's cost of equity
• B)Assign every investment a random rate that varies between the firm's cost of debt and its cost of equity
• C)Assign every project a rate equal to the firm's WACC plus or minus a subjective adjustment
• D)Determine the best pure play rate for each project
• E)Assign every project a rate equal to the market rate of return at the time of the proposal

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Definitions:

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