The possibility that inaccurate estimates of future cash ﬂows will cause a project to incorrectly be accepted or rejected is known as:
A) Sensitivity analysis.
B) Scenario analysis.
C) Forecasting risk.
D) A break-even error.
E) A marginal error.

Question

Quizplus · Accepted Answer

Forecasting risk is the risk that inaccurate estimates of future cash flows will cause a project to be incorrectly accepted or rejected. Sensitivity analysis and scenario analysis are methods used to analyze the impact of changes in inputs or scenarios on project outcomes, but do not address the risk of inaccurate forecasts. Break-even and marginal errors are related to the calculation of project breakeven points and are not relevant to the risk of inaccurate forecasts.

The Possibility That Inaccurate Estimates of Future Cash ﬂOws Will