Swanson & Sons has two separate divisions. Each division is in a separ

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.

ANSWER

D