An Objective Approach to Calculating Divisional WACCs Would Be Done

question 53

Multiple Choice

An objective approach to calculating divisional WACCs would be done by

• A) simply considering the project's risk relative to the firm's lines of business and adjusting upward or downward to account for subjective opinions of project risk.
• B) computing the average beta for the firm, the firm's CAPM formula, and the firm's WACC.
• C) computing the average beta per division, using these figures for each division in the CAPM formula, and then constructing divisional WACCs.
• D) simply averaging out all the WACCs for all the firm's projects.

Gain insight into the equity method of accounting and its application.

Know how to record adjustments for investments to fair value and their impact on financial statements.

Understand the financial reporting implications of significant influence and control over other entities.

Understand the interplay between personal beliefs, philosophical questioning, and the articulation of those beliefs.

---

Definitions:

Product-moment

A statistical measure of the linear correlation between two variables, often expressed as Pearson's correlation coefficient.

Scatterplot

A type of graph used in statistics to display values for two variables for a set of data, showing the relationship between them.

R(xy)

A statistical measure representing the strength and direction of a linear relationship between two variables.

Descriptive Statistics

Statistical methods that summarize and describe the features of a set of data.