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:

Effective Interest Rate

The real rate of interest earned or paid on a loan or investment, taking into account the effect of compounding interest as opposed to the nominal rate.

Mexican Pesos

The currency of Mexico, represented by the symbol $ or MXN, used for all financial transactions within the country.

Foreign Exchange Market

A global decentralized or over-the-counter market for trading currencies, determining foreign exchange rates for every currency.

Foreign Exchange Market

The global marketplace for exchanging national currencies against one another, driven by the need for currency conversion in trade and investment.