Kurt,who is a divisional manager,continually brags that his division's required return for its projects is 1 percent lower than the return required for any other division of the firm.Which one of the following most likely contributes the most to the lower rate requirement for Kurt's division?

Question

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The most likely factor contributing to the lower required return for Kurt's division is that it is less risky than the other divisions. A lower level of risk would justify a lower required return, as investors would be more willing to accept a lower return for a lower level of risk. Choices A and B suggest that Kurt might be overstating or understating certain aspects of his projects, which could affect the required return but are not the most likely factor. Choice C is a possibility but is less likely than choice D. Choice E is not a good explanation, as the choice of financing does not directly affect the required return, which is a function of the perceived risk of the investment.

Kurt,who Is a Divisional Manager,continually Brags That His Division's Required