Corporations often use different costs of capital for different operating divisions. Using an example, calculate the weighted cost of capital (WACC). What are some potential issues in using varying techniques for cost of capital for different divisions? If the overall company weighted average cost of capital (WACC) were used as the hurdle rate for all divisions, would more conservative or riskier divisions get a greater share of capital? Explain your reasoning. What are two techniques that you could use to develop a rough estimate for each division’s cost of capital? Your initial response should be 200 to 250 words.
Text
Hickman, K. A., Byrd, J. W., & McPherson, M. (2013). Essentials of finance [Electronic version]. Retrieved from https://content.ashford.edu/
Chapter 9: Risk and Return
Chapter 10: Cost of Capital
Multimedia
Khan Academy. (2011). Investment and Consumption (Links to an external site.)Links to an external site.[Video file]. Retrieved from https://www.khanacademy.org/economics-finance-domain/macroeconomics/gdp-topic/GDP-components-tutorial/v/investment-and-consumption
Accessibility Statement does not exist
Privacy Policy (Links to an external site.)Links to an external site.
Preston Psych. (2012) What is financial risk (Links to an external site.)Links to an external site.[Video file]. Retrieved from https://www.youtube.com/watch?v=-4mXnFK0ecM
Accessibility Statement does not exist
Privacy Policy (Links to an external site.)Links to an external site.
Sykes, A. (Producer &Director). (2006). Evaluating business performance: Small business case studies [Video file]. Retrieved from the Films On Demand database.
Accessibility Statement (Links to an external site.)Links to an external site.
Privacy Policy (Links to an external site.)Links to an external site.
Recommended Resources
Articles
Chen, M. –H. (2003). Risk and return: CAPM and CCAPM (Links to an external site.)Links to an external site.. Quarterly Review of Economics and Finance, 43(2), 369-393. Retrieved from http://jurnalilmiahmanajemen.files.wordpress.com/2011/03/risk-and-return.pdf
Elton, E. J., & Gruber, M. J. (1997). Modern portfolio theory, 1950 to date (Links to an external site.)Links to an external site.. Journal of Banking & Finance, 21(11), 1743-1759. Retrieved from http://pages.stern.nyu.edu/~eelton/papers/97-dec.pdf
Habib, A. (2006). Information risk and the cost of capital: Review of the empirical literature. Journal of Accounting Literature, 25, 127-168. Retrieved from the ProQuest database.
The full-text version of this article can be accessed through the ProQuest database in the Ashford University Library.
Treynor, J. L. (1993). In defense of the CAPM. Financial Analysts Journal, 49(3), 11-11. Retrieved from the ProQuest database.
The full-text version of this article can be accessed through the ProQuest database in the Ashford University Library.
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.
Read moreEach paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.
Read moreThanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.
Read moreYour email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.
Read moreBy sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.
Read more