A diversified company has decided to use its overall firm WACC as a performance benchmark for rating its divisional managers and to decide whether new projects from its three divisions should be funded for investment capital. The firm WACC is 12%. The divisional WACCs for its high risk, average risk, and low risk divisions are 16%, 11.9%, and 8%, respectively. Please explain the pros and cons of using the firm WACC in evaluating its divisional managers and projects. Remember that WACC can be interpreted as a hurdle rate or the minimum acceptable return. Limit your answers to no more than 10 sentences

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Upsides and downsides of utilizing the firm WACC in assessing its divisional chiefs an... View the full answer