Why Should Firms That Own and Operate Multiple Businesses That

question 91

Multiple Choice

Why should firms that own and operate multiple businesses that have different risk characteristics use business-specific,or divisional costs of capital?

• A) Not all divisions have equal risk and the firm might accept projects whose returns are higher than are deemed appropriate.
• B) Not all business divisions have equal risk and the firm will likely become less risky in the future.
• C) Not all lines of business have equal risk and it is likely that the firm will accept projects whose returns are unacceptably low in relation to the risk involved.
• D) Use of the same weighted average cost of capital for all divisions may result in too much money being allocated to the least risky division.

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Definitions:

Oropharynx

The part of the throat that is located at the back of the mouth, serving as a pathway for food and air.

Larynx

The voice box located at the upper part of the trachea, responsible for voice production, breathing, and protecting the trachea against food aspiration.

Produces Sound

Refers to the generation of audible vibrations through various mechanisms, including vocal cords in humans and other instruments or objects.

Olfactory Cells

Specialized sensory cells located in the olfactory epithelium of the nose, responsible for detecting odor molecules and sending signals to the brain.