Asked by Faustine Hudson on Jul 13, 2024
Verified
The possibility that errors in projected cash flows can lead to incorrect NPV estimates is called:
A) Forecasting risk.
B) Projection risk.
C) Scenario risk.
D) Monte Carlo risk.
E) Accounting risk.
Forecasting Risk
The potential for future revenues or earnings to deviate from projected amounts due to variables that affect demand, supply, and pricing.
NPV Estimates
Calculations used to determine the Net Present Value of an investment, forecasting the difference between the present value of cash inflows and outflows.
- Recognize the concept of forecasting risk and its implications for NPV estimates.
Verified Answer
AR
Aileen RochaJul 15, 2024
Final Answer :
A
Explanation :
Forecasting risk refers to the uncertainty in the accuracy of future cash flow projections, which directly impacts the calculation of the Net Present Value (NPV). This risk arises from the difficulty in predicting future financial performance accurately.
Learning Objectives
- Recognize the concept of forecasting risk and its implications for NPV estimates.
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