BUS401 Ashford University Cost of Capital Discussion

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gerineehf

Business Finance

bus401

ashford university

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Cost of Capital

Corporations often use different costs of capital for different operating divisions. Using an example, calculate the weighted cost of capital (WACC). What are some potential issues in using varying techniques for cost of capital for different divisions? If the overall company weighted average cost of capital (WACC) were used as the hurdle rate for all divisions, would more conservative or riskier divisions get a greater share of capital? Explain your reasoning. What are two techniques that you could use to develop a rough estimate for each division’s cost of capital? Your initial response should be 200 to 250 words.

Guided Response: Review several of your classmates’ posts. Respond to at least two classmates by sharing whether you agree or disagree with their view of the use of the company’s capital. Explain your reasoning.

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Explanation & Answer

Attached.

Running head: COST OF CAPITAL

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Cost of Capital
Student’s Name
Institutional Affiliation

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Cost of Capital
Worth a note, the cost of capital as utilized in various operating units in an enterprise
entails the opportunity cost in process of making a specific investment. Thus, the cost of capital
is the rate of return, which could be earned by investing money in a particular investment as
opposed to another investment with same risks (Pratt, & Grabowski, 2008). Notably, weighted
cost of capital (WACC) is the commonly used method to determine the cost of capital for a
specific investment in an organization that involves equity and debts. As a result, the WACC is
calculated as
WACC= r(E) * w(E)+ r(D)*(1-t)*w(D)
WACC Calculated Example For ABC Inc.
Abc Inc. iss...

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