Consider a firm which has two divisions with the following characteristics: Division $1$ Division $2$

$-$ Initial Investment $=$ $$15$ M $-$ Initial Investment $=$ $$20$ M

$-$ Expected End of Period Cash Flow $=$ $$35$ M $-$ Expected End of Period Cash Flow $=$ $$50$ M

$-$ Volatility of Cash Flow $=$ $$9$ M $-$ Volatility of Cash Flow $=$ $$55$ M

$-$ Cost of Capital $=13\%-$ Cost of Capital $=13\%$ Assume the correlation between division $1$ and division $2$ is $0\mathrm{.}60$ and the marginal cost of

CaR is $$0\mathrm{.}10.$

a$.$ Using standard financial valuation techniques which division adds more value to the

firm?

b$.$ What is the firm$$s CaR$(5\%)?$

c$.$ Which division adds more economic value to the firm? d$.$ What are the limitations of utilizing the NPV capital budgeting technique?