Which of the following is a good reason to use divisional costs of capital?

Question

Quizplus · Accepted Answer

Divisional costs of capital are useful in businesses where the different divisions have well-defined lines of business with different risk characteristics. This makes it important to have separate costs of capital for each division to accurately evaluate the investment opportunity within each division. Choice A is incorrect as division managers may have an incentive to underestimate capital costs to make their division more attractive. Choice B is incorrect as estimating divisional costs of capital can be complex and time-consuming. Choice C is incorrect as comparison firms can also have well-defined lines of business, making it possible to use their cost of capital information.

Which of the Following Is a Good Reason to Use