Firms raise capital at the total corporate level by retaining earnings and by obtaining funds in the capital markets.They then provide funds to their different divisions for investment in capital projects.The divisions may vary in risk, and the projects within the divisions may also vary in risk.Therefore, it is conceptually correct to use different risk-adjusted costs of capital for different capital budgeting projects.

Question

Quizplus · Accepted Answer

It is conceptually correct to use different risk-adjusted costs of capital for different capital budgeting projects, taking into consideration the varying risk levels of divisions and projects within the firm.

Firms Raise Capital at the Total Corporate Level by Retaining