Present value analysis—effects of estimation errors Capital budgeting analysis involves the use of many estimates.
Required:
For each of the following estimation errors, state whether the net present value of the project will be too high or too low:
a. The investment is too high.
b. The cost of capital is too low.
c. The cash flows from the project are too high.
d. The number of years over which the project will generate cash flows is too low.
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