In cash flow estimation, the existence of externalities should be taken into account if those externalities have any effects on the firm's long-run cash flows.

Question

Quizplus · Accepted Answer

Externalities, which are costs or benefits imposed onto third parties, can affect a firm's long-term cash flows. For example, a manufacturing firm that pollutes a nearby river may face increased regulatory costs or reputational damage that could affect its cash flows in the long run. Therefore, when estimating cash flows, it is important to consider externalities that may affect the firm's financial performance.

In Cash Flow Estimation, the Existence of Externalities Should Be