How should one allocate corporate overhead costs

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1. As CFO, you are trying to allocate investment funds across your threedivision firm. You observe the revenues last year as $2.0 billion, $1.5 billion, and $1.5 billion, respectively, for Divisions A, B, and C. Using these figures, you assume that Divisions A, B, and C should have investment budgets of 40, 30, and 30 percent, respectively, of the overall firm's investment budget for the year. What might be problematic about this approach?

2. Using the valuation-by-parts framework, how should one allocate corporate overhead costs to different divisions of a company? Provide an example of an allocation procedure.

Reference no: EM131276180

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