Markley and Stearns Is a Multi-Divisional Firm That Uses Its

question 46

Multiple Choice

Markley and Stearns is a multi-divisional firm that uses its 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 equal probability of receiving funding as compared to the other divisions.
• E)prefer higher risk projects over lower risk projects.

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Definitions:

Process Capability Index

The process capability index is a statistical measure that quantifies how well a process can produce output within specified limits compared to the allowable spread of specification limits.

Specification Limits

Specification limits are defined boundaries within which a product or process measure is considered acceptable according to customer or regulatory standards.

Control Charts

Tools used in statistical process control to monitor processes and ensure that they are within control limits.

Variables

Elements, features, or factors that are liable to vary or change.