Which of the Following Statements Regarding Estimation Errors in Calculating

question 54

Multiple Choice

Which of the following statements regarding estimation errors in calculating NPVs is correct?

• A)For short-term projects, an error in estimating the appropriate cost of capital will result in a much larger error in the NPV than the same percentage error in estimating the cash
• Flows.
• B)For long-term projects, an error in estimating the cash flows will result in a much larger error in the NPV than the same percentage error in the cost of capital.
• C)For short-term projects, an error in estimating the cash flows will result in a much larger error in the NPV than the same percentage error in the cost of capital.
• D)For long-term projects, it is more difficult to estimate the appropriate cost of capital to use than it is to estimate cash flows that are expected to occur in the distant future.

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