Although there is no empirical evidence to strongly support this hypothesis, some financial journalists have claimed that British managers are short-sighted and overly risk averse, preferr ing to take on relatively safe projects that pay off quickly instead of
Although there is no empirical evidence to strongly support this hypothesis, some financial
journalists have claimed that British managers are short-sighted and overly risk averse,
preferr ing to take on relatively safe projects that pay off quickly instead of taking on longerterm projects with less certain pay-offs. Assume the journalists are correct.
a Explain why managers who use a single discount rate for valuing projects are likely to
have a systematic bias against longer-term projects if the systematic risk of the cash flows
of many long-term investment projects declines over time.
b Discuss how the presence of strategic investment options affects the decisions to adopt
long-term over short-term investments.
Can you help with the understanding of question a and b
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