12.2

Question 1

Termination

Answer 1

Form of abandonment where the projects assets remain in the firm

Question 2

Sell-off

Answer 2

Form of abandonment where the projects assets are sold off

Question 3

Normative rule in project termination

Answer 3

Projects should be abandoned as soon as the exp value of terminating > exp value of continuing

Question 4

Behavioral hypothesis in project termination

Answer 4

Managers postpone project terminations when abandonment leads to realizations of losses -> loss aversion

Question 5

Sunk cost

Answer 5

Cost that already occurred and cant be recovered. Must not be taken in to d-m. The probability of winning wont change whether u take it into consideration or not

Question 6

Bad news

Good news

Answer 6

Prospect if projects are worse that exp

Managers didn’t become entrapped and the amount of good money trown after bad is less than expected

Question 7

Behavioral hypothesis announcement

Answer 7

When all or most info about poor prospects are disclosed to shareholders BEFORE announcement of termination, then its good news and SP goes up

Question 8

Possible hypothesis about sell-offs and increase in SP

Answer 8

Information H:

Synergy H: targets assets are more valuable in hands of buyer than seller.

You expect that the biggest part of synergy would go to the buyer ( more power) but it goes to the seller. Possible explanation is that the value created comes from giving up projects that have been draining resources in selling firm

Question 9

Synergy H: You expect that the biggest part of synergy would go to the buyer ( more power) but it goes to the seller. Why?

Answer 9

Possible explanation is that the value created comes from giving up projects that have been draining resources in selling firm