Risk in cash flow estimating for capital budgeting can be defined as:

A) the chance that a cash flow will turn out to be worse than the estimate.
B) the chance that a cash flow will turn out to be different than the estimate, either better or worse.
C) the chance that the cash flows that turn out to be more favorable than the estimate won't totally offset the cash flows that turn out to be worse than the estimate.
D) the chance that the NPV and/or IRR will turn out to be worse than the estimate.
E) All of the above describe the risk in cash flow estimating.

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Ansley Blanchard · Accepted Answer

Final Answer : B, Explanation :  Risk in cash flow estimating refers to the possibility that cash flows may turn out to be different than the estimated values, which could be either better or worse. Options A, C, and D are all aspects of this broader definition of risk, but option B captures it most comprehensively. Option E is incorrect because it includes D, which is only one aspect of risk in cash flow estimating.

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