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:

Budget Constraint

The limitation on the consumption bundles that a consumer can afford given their income and the prices of goods.

Income

Income earned regularly from work or investments.

Budget Constraint

A limit on the consumption choices of individuals or firms based on their income and the prices of goods and services.

Bell Peppers

A variety of large, sweet pepper that comes in different colors, including red, yellow, green, and orange, and is used in cuisine worldwide.