Asked by Aksarapak Bunchongpru on Jun 26, 2024
Verified
A financial manager who consistently underestimates the ___________ will tend to incorrectly reject projects that would actually create wealth for the stockholders.
A) Marginal income tax rate.
B) Initial cost of projects.
C) Future cash outlays associated with projects.
D) Required return on projects.
E) Future cash inflows associated with projects.
Marginal Income Tax Rate
The percentage of tax applied to your income for every dollar that falls within a certain tax bracket.
Future Cash Inflows
Projected incoming money to a business from its operations, investments, or financial transactions in the future.
- Comprehend the principle of discounted cash flow valuation and its significance in evaluating investments.
- Acknowledge the impact of the timing of cash flows on project appraisal and the function of discount rates.
- Learn the significance of salvage value and its effect on project NPV.
Verified Answer
ZK
Zybrea KnightJul 02, 2024
Final Answer :
E
Explanation :
Underestimating future cash inflows associated with projects would lead to undervaluing the potential returns of a project. This could result in incorrectly rejecting projects that would have been profitable and beneficial for the stockholders, as the projections would not accurately reflect the true financial benefits.
Learning Objectives
- Comprehend the principle of discounted cash flow valuation and its significance in evaluating investments.
- Acknowledge the impact of the timing of cash flows on project appraisal and the function of discount rates.
- Learn the significance of salvage value and its effect on project NPV.
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