Evaluating discounted cash flow techniques Rita Hendrix is angry with Bill Shaw. He is behind schedule developing supporting material for tomorrow’s capital budget committee meeting. When she approached him about his apparent lackadaisical attitude in general and his tardiness in particular, he responded, “I don’t see why we do this stuff in the first place. It’s all a bunch of estimates. Who knows what future cash flows will really be? I certainly don’t. I’ve been doing this job for five years, and no one has ever checked to see if I even came close at these guesses. I’ve been waiting for marketing to provide the estimated cash inflows on the projects being considered tomorrow. But, if you want my report now, I’ll have it in a couple of hours. I can make up the marketing data as well as they can.”
Required
Does Mr. Shaw have a point? Is there something wrong with the company’s capital budgeting system? Write a brief response explaining how to improve the investment evaluation system.