Which of the Following Is a Reason Why the Divisional

question 58

Multiple Choice

Which of the following is a reason why the divisional cost of capital approach may cause problems if new projects are assigned to the wrong division?

• A) Managers in different divisions may use different methods to calculate the WACC.
• B) The expected return of the new project may be incorrect.
• C) If projects are assigned to the wrong division, the risk of that division may be significantly different than the risk of the project, implying that the project will be evaluated with a divisional cost of capital that is much different from what a project-specific cost of capital would be.
• D) None of the options are correct.