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Develop a rough estimate for each division cost of capital

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Reference no: EM132467741

Question 1: Under what circumstances would it be appropriate for a firm to use different costs of capital for its different operating divisions? If the overall firm WACC were used as the hurdle rate for all divisions, would the riskier divisions or the more conservative divisions tend to get most of the investment projects? Why?

Question 2: If you were to try to estimate the appropriate cost of capital for different divisions, what problems might you encounter? What are the two techniques you could use to develop a rough estimate for each division's cost of capital?

Reference no: EM132467741

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