Which of these statements is true regarding divisional WACC?
A) Using a divisional WACC vs a WACC for the firm's current operations will result in quite a few incorrect decisions.
B) Using a simple firmwide WACC to evaluate new projects would give an unfair advantage to projects that present more risk than the firm's average beta.
C) Using a simple firmwide WACC to evaluate new projects would give an unfair advantage to projects that present less risk than the firm's average beta.
D) Using a firmwide WACC to evaluate new projects would have no impact on projects that present less risk than the firm's average beta.

Question

Quizplus · Accepted Answer

Divisional WACC should be used to evaluate projects that have different risks compared to the firm's current operations. Using a simple firmwide WACC would unfairly favor projects that have more or less risk than the average beta of the firm, leading to incorrect decisions. Therefore, statement B is true. Statements A, C, and D are either incorrect or do not provide enough information.

Which of These Statements Is True Regarding Divisional WACC