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 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.
C) Not all business divisions have equal risk and the firm will likely become less risky in the
future.
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.
B
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