A fiRm Has Three Divisions

question 310

Multiple Choice

A firm has three divisions. A capital budgeting request has just come through for Division C showing a positive NPV at the firm's overall WACC. The financial manager of the firm knows that
Division C is the riskiest of the three divisions. The financial manager should:

• A) Deny the request since it was computed in error.
• B) approve the request since it has a positive NPV
• C) Ask that the NPV be recomputed at a cost of capital appropriate for the division.
• D) approve the request if neither of the other two divisions have any capital budgeting projects with positive NPVs.
• E) Subjectively reduce the NPV to reflect the difference in risk and then accept the project if NPV is still positive.

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Definitions:

Myenteric Plexus

A network of neurons located between the layers of the gastrointestinal tract, playing a crucial role in the regulation of digestive tract motility.

Interstitial Cells

Cells located amongst the tissues of an organ, often referring to cells in the testes and ovaries that produce hormones.

Pacemaker Cells

Specialized cells within the heart's sinoatrial node that generate and regulate the heart's rhythm.

Enteric Sensory Neurons

Nerve cells within the enteric nervous system that detect changes in the gastrointestinal tract and send information to the central nervous system.