Most cash flow forecasts are prone to error and bias. The financial manager, therefore, must be in a position to distinguish between genuinely good projects and those that look good because of errors or bias in the forecasts. The concept of economic rents helps the financial manager in this task. Genuinely good projects generate economic rents. NPV is the discounted value of these rents. Therefore, the manager should try to identify projects, which generate economic rents and not be preoccupied with the mechanics of calculating NPV.
