Recognizing that it may be in managers' best interests to be overly optimistic when proposing projects, how might firms effectively control this impulse?
A)employ capital rationing
B)discontinue investment proposals
C)fire managers after their first mistake
D)fund all project proposals

Question

Quizplus · Accepted Answer

Capital rationing is a method of controlling the amount of funds available for investment projects. By limiting the amount of capital available, firms can force managers to be more conservative in their project proposals and prioritize the most promising projects. This can help counteract the tendency towards excessive optimism and ensure that only the most viable projects are pursued. Discontinuing investment proposals or firing managers after a single mistake may create a culture of fear and discourage innovation, while funding all project proposals without due diligence can lead to wasted resources and poor financial performance.

Recognizing That It May Be in Managers' Best Interests to Be