• We learned this week, that analysts desire to develop forecasts that are realistic, objective, and unbiased. Some firms managers tend to be optimistic. Some accounting principles tend to be conservative. Describe the different risks and incentives that managers, accountants, and analysts face. Explain how these different risks and incentives lead managers, accountants, and analysts to different biases when predicting uncertain outcomes.
• Explain the theory behind the dividends-based valuation approach. Why are dividends value-relevant to common equity shareholders?