Preston Industries Has Two Separate Divisions

question 65

Multiple Choice

Preston Industries 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 company's overall sales. Division A is also the riskier of the two divisions. When management is deciding which of the various divisional projects should be accepted, the managers should:

• A) allocate more funds to Division A since it is the larger 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's funds to the projects with the highest net present values based on the company's weighted average cost of capital.
• D) assign appropriate, but differing, 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:

Collective Impact Partnerships

A structured approach to solving social problems that involves multiple organizations or entities agreeing to solve a particular issue through a shared set of goals and metrics.

Merger

The combination of two or more companies into a single entity, typically to achieve synergies, expand market presence, or improve efficiency.

National Nonprofit

A type of organization dedicated to furthering a particular social cause or advocating for a shared point of interest, which does not distribute its surplus funds to owners or shareholders.

Local Chapter

A regional or local division of a larger organization, often responsible for carrying out the organization's mission in a specific geographical area.