Which of these statements is true regarding divisional WACC? Using a simple firm

Question

Which of these statements is true regarding divisional WACC?

Using a simple firmwide WACC to evaluate new projects would give an unfair advantage to projects that present less risk than the firm's average beta.

Using a firmwide WACC to evaluate new projects would have no impact on projects that present less risk than the firm's average beta.

Using a simple firmwide WACC to evaluate new projects would give an unfair advantage to projects that present more risk than the firm's average beta.

Using a divisional WACC versus a WACC for the firm's current operations will result in quite a few incorrect decisions.

Explanation / Answer

Option-C is correct.

Using a simple firm-wide WACC to evaluate new projects would give an unfair advantage to projects that present more risk than the firm's average beta.

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