Marzella Corp. is analyzing a project that involves expanding the ﬁrm into a new product line. The project includes the construction of a new manufacturing facility and the creation of a new
Distribution system. The project's ﬁnancial projections will tend to have which one of the following
Characteristics if the person compiling those projections suffers from over-optimism?
A) Overestimated construction costs.
B) Overestimated expenses.
C) Overestimated net present values.
D) Underestimated proﬁts.
E) Underestimated sales estimates.

Question

Quizplus · Accepted Answer

Over-optimism tends to result in overestimating the net present values (NPVs) of a project. This occurs because over-optimistic individuals may be overly confident in the success of the project, leading them to overestimate future cash flows and discount rates, resulting in a higher NPV estimate.