Question

_______________________ is a well-known problem in capital budgeting and occurs when supporters of a proposed project present the best scenario for the project so that it will have a better chance of being approved.

a		Parent-subsidiary asymmetry
b		Requester bias
c		The invalid estimate
d		The exaggerated estimate

Answer 1

Option b.   Requester bias

Parent - subsidiary asymmetry occurs when there is a problem with the forecasting of both the parent and subsidiary, as subsidiary might have positive outlook for the cash flow thus overestimating the value of the project making it more attractive.

Requester bias on the other hand proposes the project with the best scenario of the project to make it more attractive.