The Tiemey Group has two divisions of equal size: an office furniture manufacturing division and a data processing

division. Its CFO believes that stand$-$alone data processor companies typically have a WACC of $9\%,$ while stand$-$alone

furniture manufacturers typically have a $13\%$ WACC. She also believes that the data processing and manufacturing

divisions have the same risk as their typical peers. Consequently, she estimates that the composite, or corporate,

WACC is $11\%.$ A consultant has suggested using a $9\%$ hurdle rate for the data processing division and a $13\%$ hurdle

rate for the manufacturing division. However, the CFO disagrees, and she has assigned an $11\%$ WACC to all projects

in both divisions. Which of the following statements is CORRECT?

The decision not to adjust for risk means, in effect, that it is favoring the data processing division. Therefore,

that division is likely to become a larger part of the consolidated company over time.

The decision not to adjust for risk means that the company will accept too many projects in the manufacturing

division and too few in the data processing division. This will lead to a reduction in the firm's intrinsic value

over time.

The decision not to risk$-$adjust means that the company will accept too many projects in the data processing

business and too few projects in the manufacturing business. This will lead to a reduction in its intrinsic value

over time.

The decision not to risk$-$adjust means that the company will accept too many projects in the manufacturing

business and too few projects in the data processing business. This may affect the firm's capital structure but it

will not affect its intrinsic value.

While the decision to use just one WACC will result in its accepting more projects in the manufacturing division

and fewer projects in its data processing division than if it followed the consultant's recommendation, this should

not affect the firm's intrinsic value.