Examples of relevant historical relationships that are useful for forecasting cash flows include the relationship between fixed and variable expenses and the impact on revenue of changes in product prices and unit sales. If these relationships can reasonably be expected to continue through the forecast period, they can be used to project the earnings and cash flows used in the valuation process. However, it is important to ignore cyclical movements in the data.

Question

Quizplus · Accepted Answer

Ignoring cyclical movements in the data can lead to inaccurate forecasts, as these movements can significantly impact cash flows and should be considered in the valuation process.

Examples of Relevant Historical Relationships That Are Useful for Forecasting