Berkshire Hathaway is a conglomerate run by Warren Buffett which holds large stakes in a variety of companies including wholly$-$owned subsidiaries, and is considering purchasing Benjamin Moore and Co$.,$ a painting supply company. Suppose that Berkshire Hathaway$$s weighted average cost of capital is $12\%.$ If Benjamin Moore and Co$.$ is substantially more risky than Berkshire Hathaway$$s other portfolio holding companies, it appropriate for Benjamin Moore and Co$.$ to use Berkshire Hathaway$$s cost of capital rate. If Benjamin Moore and Co$.$ uses Berkshire Hathaway$$s cost of capital as its WACC, this leads to the company incorrectly too many projects. The approach suggests that we can obtain a WACC for Benjamin Moore and Co$.$ based on a peer firm$$s WACC such as Sherwin Williams.