Preston Industries Has Two Separate Divisions

question 89

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 70 percent of the firm's overall sales. Division A is also the riskier of the two divisions. Division B is the smaller and least risky of the two. 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 largest 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 firm'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 70 percent of the funds to Division A and 30 percent of the funds to Division B.

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Definitions:

Entrepreneurial Process

A sequence of steps that an individual or group takes to identify a new business opportunity, develop a plan, and then implement the plan to create a new venture.

Innovative Spirit

The inclination or approach to thinking in novel and creative ways to solve problems or generate new opportunities.

Rigid Organizational Structure

An inflexible company framework that has strict rules, procedures, and hierarchies, which can limit adaptability and innovation.

Strategic Assistance

Targeted support provided to organizations or individuals to help them achieve long-term goals and improve their strategic positioning.