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| Author: | Andrews, G. S. Firer, C. |
| Title: | Why different divisions require different hurdle rates. |
| Journal: | Long Range Planning
1987 : OCT, VOL. 20:5, p. 62-68 |
| Index terms: | CAPITAL COSTS CAPITAL BUDGETING |
| Language: | eng |
| Abstract: | The concept of a weighed average cost of capital is discussed and it is shown why returns which exceed this cost of capital are required if shareholder wealth is to be increased. The concept is then analysed in the context of a divisionalized firm. Argument is presented to show why different divisions ought to have different hurdle rates for evaluating capital budgeting proposals. Finally the divisional costs of capital of a diversified industrial company are calculated in order to illustrate the principles outlined. |
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