Project proposals often come with favorably biased input assumptions. The finance department should ensure that only reasonable assumptions are used in the capital budgeting process.

Question

Project proposals often come with favorably biased input assumptions.  The finance department should ensure that only reasonable assumptions are used in the capital budgeting process.

Quizplus · Accepted Answer

The finance department is responsible for ensuring that only reasonable assumptions are used in the capital budgeting process, and they should reject any input assumptions that are unrealistically optimistic or favorably biased. This is because inaccurate assumptions can lead to flawed decision-making and result in wasteful spending, misallocation of resources, and negative impacts on the company's financial performance. Therefore, it is important for the finance department to exercise diligence and objectivity in evaluating project proposals and input assumptions.

Project Proposals Often Come with Favorably Biased Input Assumptions