Question

If a firm applies its overall cost of capital to all its proposed projects, then the divisions within the firm will tend to ______. Group of answer choices receive less funding if they represent the riskiest operations of the firm avoid risky projects so that they will receive more funding become less risky over time based on the projects that are accepted have equal probabilities of receiving funding for their projects propose higher risk projects than if separate discount rates were applied to each project

Answer 1

receive less funding if they represent the riskiest operations of the firm

Step-by-step explanation:

In simple words, the cost of capital is represented as weighted average and its represents the level or return expected by the investors and represents the level of risk of the firm on average. Therefore, managers tends to lift up or down this return depending upon the risk of the potential project to be taken.

Thus, if the average return will be applied for all projects then high risk projects will get less funding and low risk project will get excess funding.