Business, 13.01.2022 14:50 brutalgitaffe
Old Town Industries has three divisions. Division X has been in existence the longest and has the most stable sales. Division Y has been in existence for five years and is slightly less risky than the overall firm. Division Z is the research and development side of the business. When allocating funds, the firm should probably:.
i. require the highest rate of return from division X since it has been in existence the longest.
ii. assign the highest cost of capital to division Z because it is most likely the riskiest of the three divisions.
iii. use the firm's WACC as the cost of capital for division Z as it provides analysis for the entire firm.
iv. use the firm's WACC as the cost of capital for divisions A and B because they are part of the revenue-producing operations of the firm.
v. allocate capital funds evenly amongst the divisions to maintain the current capital structure of the firm.
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