1. What is meant by the terms "centralized" and "decentralized" when applied to capital budgeting? Why might centralized and decentralized analyses of the same project lead to different net present values? What might lead companies in one country to have a lower cost of capital than similar companies in another?
In the centralized capital budgeting environment, decisions about capital investments are undertaken by a single set of managers in the firm, regardless of which individual affiliates are actually going to utilize the relevant capital assets. The manager reports his private information about the investment project to the owner, who then ...
This solution explains what is meant by the terms "centralized" and "decentralized" when applied to capital budgeting.