Question

An ability to efficiently allocate capital through an internal market may help the firm protect the competitive advantages it develops: a. by the ability to increase pay to managers without shareholders being aware. b. by the ability to not report losses to investors. c. through the ability to reinvest cash in dividends to shareholders. d. through reduced disclosure to outside parties.

Answer 1

Answer:

D) through reduced disclosure to outside parties.

Explanation:

When a firm efficiently allocates capital through an internal market it means that it is assigning capital resources to the company's departments or divisions that produce the highest marginal returns. For example, the company has 4 manufacturing divisions and it will allocate capital resources depending on their ability to produce higher returns, i.e. the most profitable divisions receive more money.