Ajax Corp Has Been Operating as Three Separate Divisions Over the the Past

question 8

Multiple Choice

Ajax Corp. has been operating as three separate divisions over the past ten years, although all capital budgeting decisions are ultimately made at the home office using the firm's overall WACC.
Just recently, they discovered the divisions have significantly different risks. Which of the following
Is also likely to be true?

• A) The divisions are being rewarded for decreasing their risk.
• B) Higher earning divisions will be less risky than the lower earning divisions.
• C) Its low earning division tends to be ignored in capital allocation even though it tends to maintain lower levels of risk.
• D) The differences in risk among the divisions has no impact on the capital budgeting process.
• E) The highest divisional cost of capital will approximately equal the firm's overall cost of capital.

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Definitions:

Growth

An increase in size, amount, or degree, often measured in physical, emotional, or intellectual development.

Months

Periods into which a year is divided, consisting of 12 units in Gregorian calendar, each roughly 30 days long, used to measure time.

Temperament

A person's or animal's nature, especially as it permanently affects their behavior, often considered as an innate aspect of an individual.

Tantrums

Outbursts of anger and frustration, often experienced by children, characterized by crying, screaming, and sometimes physical behaviors like kicking or hitting.