A sensible way for a manager to account for overoptimistic cash-flow forecasts is to adjust the discount rate.

Question

Quizplus · Accepted Answer

Adjusting the discount rate to account for overoptimistic cash-flow forecasts is not considered a sensible approach because the discount rate is meant to reflect the time value of money and the risk of the project, not to correct for inaccuracies in cash-flow forecasts. Instead, managers should directly adjust the cash-flow forecasts to be more realistic or apply scenario analysis and sensitivity analysis to better understand the impacts of overoptimism.

A Sensible Way for a Manager to Account for Overoptimistic