fin645 assignment module 4

"Since capital budgeting decisions involve the estimation of a

project's future cash flows and the rate at which they should be

discounted is still a relatively subjective process, the behavioral

traits of managers still affect this process." Discuss this

statement and suggest how managers can better improve their ability to

eliminate biases in their forecasting.

2. 23 July 2002 an article entitled "Investors Appreciate Dividends

Again, See Them as Safer Bets in Bear Market," appeared on

_Associated Press Newswire_. The article described two reasons why

financial planners have routinely recommended that investors hold

dividend-paying stocks, especially in bear markets such as the period

2001-2002: First, retired investors use quarterly dividends to augment

their income find dividends to be more attractive during bear markets.

Second, investors search for a bird in the hand, which dividends

represent. In this respect, dividends provide investors with the

ability to be patient, and wait out the market decline. The article

quotes Steve Wetzel, a professor of finance at New York University's

School of Continuing Education and a certified financial planner, and

Arnie Kaufman, editor of Standard & Poor's newsletter _The Outlook_.

Discuss both reasons mentioned above, in the context of this week's

assigned readings.

3. Discuss the merits of the following statement: Inside directors

should constitute the majority of a corporate board, because insiders

have superior understanding of the firm's business operations. What

evidence can you cite in support or in opposition to this assertion?

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