Jenner's Is a Multi-Division Firm That Uses Its Overall WACC

question 45

Multiple Choice

Jenner's is a multi-division firm that uses its overall WACC as the discount rate for all proposed projects. Each division is in a separate line of business and each presents risks unique to those lines. Given this, a division within the firm will tend to:

• A) receive less project funding if its line of business is riskier than that of the other divisions.
• B) avoid risky projects so it can receive more project funding.
• C) become less risky over time based on the projects that are accepted.
• D) have an equal probability with all the other divisions of receiving funding.
• E) prefer higher risk projects over lower risk projects.

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Definitions:

Received

To have taken possession or delivery of an item, payment, or communication.

Equivalent

Items or quantities having the same value, function, or meaning, often used in comparisons.

Annually Compounded Rate

The interest rate calculated once per year, taking into account the effect of compounding over that period.

Bank Balance

The total amount of funds in a bank account at a given moment.