When Computing the Cost of Capital

Multiple Choice

When computing the cost of capital:

A) Firms with business units having different levels of risk should calculate the cost of capital for each unit separately.
B) It is not necessary to compute the cost of capital separately as the market risk across all units will average out.
C) Using a single cost of capital for a firm with units with different market risks is advisable as it provides investors with a focused metric for assessing the returns they can expect.
D) Determining the cost of capital is of secondary importance to the firm's forecast of sales growth,so a single cost of capital calculation for all business units is acceptable.
E) Since assessing a firm's cost of capital cannot be done with a reasonable level of accuracy,calculating a separate cost for each business unit is not necessary.