Kurt,who Is a Divisional Manager,continually Brags That His Division's Required

question 80

Multiple Choice

Kurt,who is a divisional manager,continually brags that his division's required return for its projects is 1 percent lower than the return required for any other division of the firm.Which one of the following most likely contributes the most to the lower rate requirement for Kurt's division?

• A)Kurt tends to overestimate the projected cash inflows on his projects.
• B)Kurt tends to underestimate the variable costs of his projects.
• C)Kurt has the most efficiently managed division.
• D)Kurt's division is less risky than the other divisions.
• E)Kurt's projects are generally financed with debt while the other divisions' projects are financed with equity.

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Definitions:

Private Ownership

The holding of personal assets by individuals or corporations allowing for the control and benefiting from the use of those assets, contrasted with public or state ownership.

Capitalism

An economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market.

Branch Plants

Factories, offices, or other operations set up in a country by a company that is based in another country, often to take advantage of lower production costs.

Low-Wage

Employment that remunerates workers with pay significantly below the average for the labor market.