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Crazy boy [7]
2 years ago
13

what circumstances would it be appropriate for a firm to use different costs of capital for its different operating division div

isions tend to get most of the investment projects? ? if you were to try to estimate the appropriate cost of capital for different divisions, what probl capital?
Business
1 answer:
djyliett [7]2 years ago
4 0

If the several operational divisions were in significantly different risk classifications, distinct cost of capital estimates should be used for each division; using a single, overall cost of capital would be incorrect.

<h3>Why is it essential for businesses to calculate their cost of capital?</h3>

In economics and accounting, the cost of capital is the price a firm pays for its assets, or from the investor's point of view, the needed rate of return on a portfolio company's existing securities. It is used to assess a company's new ventures. The cost of capital is used by business executives to determine how much money new ventures need to earn in order to cover their initial costs and turn a profit. They also use it to assess the risk of future business decisions. Investors and analysts place a high value on the cost of capital.

The common issue encountered when assessing the cost of capital for a division is that its own securities are rarely traded on the market, making it impossible to monitor the market's appraisal of the division's risk.

To learn more about the Cost of capital, click:

brainly.com/question/28317895

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