A firm has three divisions. A capital budgeting request has just come through for Division C showing a positive NPV at the firm's overall WACC. The financial manager of the firm knows that
Division C is the riskiest of the three divisions. The financial manager should:
A) Deny the request since it was computed in error.
B) approve the request since it has a positive NPV
C) Ask that the NPV be recomputed at a cost of capital appropriate for the division.
D) approve the request if neither of the other two divisions have any capital budgeting projects with positive NPVs.
E) Subjectively reduce the NPV to reflect the difference in risk and then accept the project if NPV is still positive.
Correct Answer:
Verified
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