In a multi-divisional firm, what are the two fundamental (and related) problems with the internal capital allocation process?

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The two fundamental problems with the internal capital allocation process in a multi-divisional firm are decentralized information and incentive problems. Decentralized information refers to the challenge of accurately assessing the value and potential of projects across different divisions due to information being spread out. Incentive problems arise when the interests of division managers do not align with those of the overall firm, leading to potential misallocation of resources.

In a Multi-Divisional Firm, What Are the Two Fundamental (And