A firm uses its weighted average cost of capital to evaluate the proposed projec

Question

A firm uses its weighted average cost of capital to evaluate the proposed projects for all of its varying divisions. By doing so, the firm:

I. automatically gives preferential treatment in the allocation of funds to its riskiest division.

II. encourages the division managers to only recommend their most conservative projects.

III. tends to change its overall risk structure over time.

IV. tends to allocate money equally among its divisions.

a. II and IV only b. I and III only c. III and IV only d. II only e. I only

Explanation / Answer

III and IV only

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