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.
E)profitable.

Question

Quizplus · Accepted Answer

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 different. This is because the businesses have varying risks, profitability, and investment opportunities that require separate cost of capital. Using an average cost of capital for all businesses in a firm might not correctly reflect the risk of the project, leading to incorrect investment decisions. Therefore, it is essential to use divisional costs of capital to evaluate projects accurately.

Divisional Costs of Capital Are More Appropriate When Evaluating a Project