3a) This depends on the project. b) Better than the company or industry average, whichever is higher. C) Higher than the cost of capital. d) e) over 0.
The objection is based on speculation. Since we do not know what the future reinvestment rate is going to be, we must work with the best information we have today.
Again, the objection is the same. A complaint that we have less than perfect information when we are forecasting the future is absurd. We also do not know precisely what the future cash flows will be. We still need to make a decision, and that decision must therefore be made on the basis of the best information that we have today. The criticism has no validity.
Ch 9-1. Forecasting risk reflects the risk associated with forecasting future cash flows. There is more forecasting risk for a new product than for...
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