Swanson & Sons Has Two Separate Divisions

question 5

Multiple Choice

Swanson & Sons has two separate divisions.Each division is in a separate line of business.Division A is the largest division and represents 65 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 the company is deciding which of the various divisional projects should be accepted they 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 funds to the projects with the highest net present values based on the firm's weighted average cost of capital.
• D) assign different 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 65 percent of the funds to Division A and 35 percent of the funds to Division B.

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Definitions:

Activity Variance

The difference between the estimated cost/benefit of an activity and its actual cost/benefit.

Net Operating Income

The profit a company generates from its normal business operations, excluding other income and expenses not related to its core activities.

Tenant-Days

A measure used in the hospitality or rental industry, representing the total number of days that tenants occupy a space.

Facility Expenses

Costs associated with the physical locations where businesses operate, such as rent, utilities, maintenance, and security.