Terminal value assumptions can lead to bad capital budgeting decisions because:
A)the mathematics are tricky and difficult to understand.
B)almost any project can be made to look good with an aggressive terminal value assumption.
C)nothing lasts forever.
D)almost all growth assumptions are unreasonable.

Question

Quizplus · Accepted Answer

Terminal value assumptions are typically used to estimate the long-term value of a project beyond the explicit forecast period. Since these assumptions rely heavily on growth rates and discount rates, they can be easily manipulated to make almost any project look good. This can be dangerous because it may result in investments being made in projects that are not as financially viable as they appear.

Terminal Value Assumptions Can Lead to Bad Capital Budgeting Decisions