Old Town Industries Has Three Divisions

Multiple Choice

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.Given this, the firm should probably:

A) require the highest rate of return from Division X since it has been in existence the longest.
B) assign the highest cost of capital to Division Z because it is most likely the riskiest of the three divisions.
C) use the firm's WACC as the cost of capital for Division Z as it provides analysis for the entire firm.
D) 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.
E) allocate capital funds evenly amongst the divisions to maintain the current capital structure of the firm.