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.

Question

Quizplus · Accepted Answer

The future cash inflows associated with projects are used to estimate the net present value (NPV) of a project. If a financial manager consistently underestimates these cash inflows, they will end up incorrectly rejecting projects that would have actually created wealth for the stockholders. Therefore, E is the correct answer.

A ﬁNancial Manager Who Consistently Underestimates the ___________ Will Tend