Biology Forums - Study Force

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

▸ allocate more funds to Division A since it is the largest of the two divisions.

▸ 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.

▸ allocate the company funds to the projects with the highest net present values based on the firm's weighted average cost of capital.

▸ assign different discount rates to each project and then select the projects with the highest net present values.

▸ 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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