Ultimately what does a forecast scenario consist of? FV of projected net cash flows Thousands of individual parts in a spreadsheet Estimated NPV based on projected cash flows Submit
The Correct Answer and Explanation is:
The correct answer is Estimated NPV based on projected cash flows.
A forecast scenario is generally focused on estimating the future financial performance of a project, investment, or business, and it primarily involves evaluating the projected cash flows that are expected over time. The Net Present Value (NPV) is a key metric used in financial modeling and forecasting to determine the value of a project by calculating the present value of future cash flows, adjusted for time and risk.
When creating a forecast scenario, it’s important to project the cash inflows and outflows that will occur in the future, and then discount them to present value terms using a discount rate. The estimated NPV reflects the overall profitability of the project or investment, considering these discounted projected cash flows.
While the Future Value (FV) of projected net cash flows is important in some financial analyses, NPV tends to be the more common and holistic measure, as it considers the time value of money. On the other hand, thousands of individual parts in a spreadsheet could be part of a detailed model, but the focus of a forecast scenario is generally on summarizing these into key financial metrics like NPV, which provide a clear indication of the project’s financial viability.
Thus, the most comprehensive answer is the estimated NPV based on the projected cash flows.
