What Are the Consequences of Excessive Optimism or Pessimism in Forecasting

question 58

Essay

What are the consequences of excessive optimism or pessimism in forecasting expected project cash flows?

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Definitions:

Percentage-of-Receivables Basis

A method used in accounting to estimate the amount of accounts receivable that will not be collected by applying a percentage based on historical data.

Bad Debt Expense

A cost reported on the income statement, reflecting credit sales that are not expected to be collected.

Retailer

A business entity that sells goods or merchandise directly to consumers.

Collection Process

Procedures followed by a business to collect money owed by customers.