Divisional costs of capital are more appropriate when evaluating a project for a line of business when the types of business in a firm are ________.
A) mature businesses
B) similar
C) new businesses
D) different

Question

Quizplus · Accepted Answer

Divisional costs of capital are more appropriate when different types of business exist within the firm, as each business may have different risk profiles and therefore require different costs of capital. When businesses are similar, a company-wide cost of capital is likely more appropriate. When businesses are new, it may be more difficult to determine an appropriate cost of capital, regardless of whether they are similar or different.

Divisional Costs of Capital Are More Appropriate When Evaluating a Project