Some Public Companies have various Business Units or divisions; will it be acceptable for a firm to use different costs of capital for its different Business Units or Divisions? If a firm use its overall WACC as a measure of the efficiency of all its Business Unit , would the Business Units which has a higher WACC or would the more efficient Business Unit with an overall lower WACC be the recipient of strategic investment projects? Why?

If any public company seek to estimate the appropriate cost of capital for different business units, what issues might they encounter? Identify two techniques that could use to develop aprojected cost of capital for each business units in any given firm?

(10 marks)