An "Optimally Imperfect" Decision Is One That

question 103

Multiple Choice

An "optimally imperfect" decision is one that

• A)is vaguely right instead of precisely wrong.
• B)recognizes that the decision could always be better if given more time.
• C)recognizes that the cost of additional information probably exceeds the potential gain from making a better decision.
• D)recognizes that any decision is imperfect because humans have limited intellectual capacities.

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Definitions:

Financial Risk

The possibility of losing money on an investment or business venture, including the risk of not receiving expected returns.

Financial Distress Costs

Expenses stemming from a company's financial troubles, including the costs of bankruptcy, restructuring, and impaired ability to conduct business.

Indirect Bankruptcy Costs

Indirect bankruptcy costs include the intangible costs related to the loss of business, customer trust, and employee morale that a company faces when going through bankruptcy.

M&M Proposition II

It refers to a theory related to capital structure, stating that a firm's cost of equity increases with leverage because the risk to equity holders increases.