In the diversified firm,internal capital allocation may provide greater gains relative to external capital market allocation because:
A) internal capital allocation always leads to an optimal level of diversification.
B) the corporate office has superior information about its businesses compared to the information investors have about those enterprises.
C) the firms act as a mutual fund when investing internal capital.
D) management maintains control of all invested capital.

Question

Quizplus · Accepted Answer

Internal capital allocation may provide greater gains relative to external capital market allocation because the corporate office has superior information about its businesses compared to the information investors have about those enterprises. This means that the internal allocation allows for better decision-making and allocation of funds based on knowledge of the specific businesses within the company.

In the Diversified Firm,internal Capital Allocation May Provide Greater Gains