Cranberry Corp

question 29

Multiple Choice

Cranberry Corp.has two divisions of equal size: a computer manufacturing division and a data processing division.Its CFO believes that stand-alone data processor companies typically have a WACC of 8%,while stand-alone computer manufacturers typically have a 12% WACC.He also believes that the data processing and manufacturing divisions have the same risk as their typical peers.Consequently,he estimates that the composite,or corporate,WACC is 10%.A consultant has suggested using an 8% hurdle rate for the data processing division and a 12% hurdle rate for the manufacturing division.However,the CFO disagrees,and he has assigned a 10% WACC to all projects in both divisions.Which of the following statements is CORRECT?

• A) While the decision to use just one WACC will result in its accepting more projects in the manufacturing division and fewer projects in its data processing division than if it followed the consultant's recommendation,this should not affect the firm's intrinsic value.
• B) The decision not to adjust for risk means,in effect,that it is favoring the data processing division.Therefore,that division is likely to become a larger part of the consolidated company over time.
• C) The decision not to adjust for risk means that the company will accept too many projects in the manufacturing division and too few in the data processing division.This will lead to a reduction in the firm's intrinsic value over time.
• D) The decision not to risk adjust means that the company will accept too many projects in the data processing business and too few projects in the manufacturing business.This will lead to a reduction in its intrinsic value over time.
• E) The decision not to risk adjust means that the company will accept too many projects in the manufacturing business and too few projects in the data processing business.This may affect the firm's capital structure but it will not affect its intrinsic value.

Clarify the misconceptions about the accounting cycle and common practices.

Comprehend the structure and utility of an end-of-period spreadsheet heading.

Understand the process and importance of recording adjustments in the journal and posting them to the ledger.

Identify where major account types appear on the balance sheet.

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Definitions:

Conflict Management

The practice of identifying and handling conflicts in a sensible, fair, and efficient manner, with the goal of reaching a resolution that is acceptable to all parties.

Direct Confrontation

A form of communication where individuals address issues or conflicts openly and directly.

Majority Groups

Social or demographic groups that represent the largest portion of the population in a given society, often holding significant power or influence.

Competition Approach

A business strategy that focuses on outperforming competitors by developing a competitive advantage through factors like cost, product, or service.