37. Graham Industries has two separate divisions: the Farm Equipment Division and the Household Products Division. Each division accounts for about 50 percent of the company's revenues and assets. Graham's management now wants to enter the toy industry. In assessing the attractiveness of investment projects in the toy industry, Graham's management should use a required rate of return based on:

Select exactly 1 answers from the following:
A. a required return computed for the toy industry.
B. the required rate of return on the market portfolio.
C. Graham's current weighted-average cost of capital.
D. a weighted-average required return computed for the farm equipment, household products, and toy industries.
答案和详解如下！
Feedback: Correct answer: A

Fundamentals of Financial Management, 8th edition, Eugene F. Brigham and Joel F. Houston (Dryden, 1998), pp. 473?74

2006 Modular Level I, Vol. III, pp. 131-132

Study Session 11-49-d

discuss the procedure for developing a risk-adjusted discount rate

A divisional cost of capital for the toy division (required return for investments in the toy industry) should be developed to evaluate investments in that industry. Using a risk-adjusted discount rate recognizes that different projects (industries) have different levels of risk associated with their expected cash flows.

Correct answer: B

c

c

d

g

a

c

d