'With electricity generating businesses around the world, AES Corp. is seeking a methodology for

calculating the cost of capital for its various businesses and potential projects. In the past, AES used the

same cost of capital for all of its capital budgeting, but the company's international expansion has

raised questions about this approach and whether a single cost of capital adequately accounts for the

different risks AES faces in its diverse businesses and diverse environments. The company recently

suffered heavy losses from currency devaluations in South America and regulatory changes in other

countries. The director of the corporate planning group is developing a methodology for taking account

of different country and project risks, and to calculate the cost of capital for $15$ different projects

around the world. Firms must consider how a global firm can account for differing risks in evaluating

its international operations and in investing abroad.$\text{'}$

Required:

a$)$ Why is it unwise for AES to use the same cost of capital in all its capital budgeting?

b$)$ What recent event prompted the firm to review its approach?

c$)$ Describe how the corporate planning director is dealing with the challenge.