Swanson & Sons Has Two Separate Divisions

question 5

Multiple Choice

Swanson & Sons has two separate divisions.Each division is in a separate line of business.Division A is the largest division and represents 65 percent of the firm's overall sales.Division A is also the riskier of the two divisions.Division B is the smaller and least risky of the two.When the company is deciding which of the various divisional projects should be accepted they should:

• A) allocate more funds to Division A since it is the largest of the two divisions.
• B) fund all of Division B's projects first since they tend to be less risky and then allocate the remaining funds to the Division A projects that have the highest net present values.
• C) allocate the company funds to the projects with the highest net present values based on the firm's weighted average cost of capital.
• D) assign different discount rates to each project and then select the projects with the highest net present values.
• E) fund the highest net present value projects from each division based on an allocation of 65 percent of the funds to Division A and 35 percent of the funds to Division B.

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Definitions:

Reality Principle

The concept in psychoanalytic theory that the mind functions to mediate between the demanding needs of the id and the external real world.

Ego

In psychoanalytic theory, the part of the mind that mediates between the conscious and the unconscious and is responsible for reality testing and a sense of personal identity.

Personality

The combination of emotional, attitudinal, and behavioral response patterns of an individual, defining their character and psychological identity.

Freud

Sigmund Freud, an Austrian neurologist known for founding psychoanalysis, a clinical method for treating psychopathology through dialogue between a patient and a psychoanalyst.