Which of the Following Is NOT a Good Reason to Use

question 102

Multiple Choice

Which of the following is NOT a good reason to use divisional costs of capital?

• A)Divisional costs of capital require less time and effort to estimate than individual project costs of capital.
• B)Divisional costs of capital reduce the latitude of divisional managers in deciding which projects to accept.
• C)Divisional costs of capital reflect differences in the systematic risk of projects evaluated by different divisions.
• D)Divisional costs of capital may be estimated by comparing divisions to the most similar free standing companies which may have different capital structures.

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Definitions:

Perfectly Competitive Industry

An industry structure where many firms sell identical products, entry and exit are easy, and no single seller controls the market price.

Market Price

The price at which a good or service can be bought or sold in a marketplace, determined by supply and demand.

Perfect Competition

A market structure characterized by a large number of small firms, a homogeneous product, free entry and exit, and perfect information.

Inelastic Demand

Demand that responds somewhat, but not a great deal, to changes in price. Inelastic demand always has a numerical value between zero and 1.