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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. Knowing where a business stands when they want to seek growth in their assets they need to ensure that their current/present financial assets will support this new step. Weighted average Cost of capital also known as (WACC) requires returns after-tax. Bonds and other types of debt is tax deductible with this it does lower the effective cost of debt to the firm. Other things that are added to this are firm’s bond, preferred stock, and common equity this is all weighted by the proportional contribution (Hickman, Byrd, & McPherson, 2013). (A) Targeted Proportion (B) Project Capital Component Debt (bonds) Or Weight 35.0% Cost $72,328 (A)x(B) Dollars raised $25,315 Preferred Stock 8.9% $72,328 Common Equity 56.1% $72,328 100.0% (D) After-tax required returns 7.3% (A)x(D) weighted average 2.56% $6437.00 13.4% 1.19% $40,576 17.00% 9.54% $72,328 13.29% In this chart above it is noted that the cost of the particular project is $72,328 and the weighted average would be 13.44%. With estimating the discount rate it is not always the correct or best discount rate fo the company and this will be reflected and create risk. If the project is riskier than the hurdle rate should be higher but any company that would want to invest in something without a lot of risk would have riskier divisions with greater share of capital. To get a rough estimate one could use a substitute for the division also calculating the discount rate. Hickman, K. A., Byrd, J. W., & McPherson, M. (2013). Essentials of finance. San Diego, CA: Bridgepoint Education Inc.