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Level II
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Equity Valuation
Equity Valuation
Hard
Ridgemont Conglomerate allocates $200M in free cash flow from its defense division to subsidize its underperforming media unit. An activist investor argues this destroys value. Which explanation best supports the activist's position?
A
Internal capital markets misallocate resources compared to external capital markets that evaluate each business independently
B
Subsidizing the media unit increases total firm revenue and should be value-neutral
C
The defense division's cash flow would be lower without the media unit's distribution network
D
Cross-subsidization reduces corporate tax liability through loss offsets
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Tags
#conglomerate-discount
#internal-capital-markets
#activist-investing
#value-destruction
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