How does the length of the projection period affect DCF analysis?

The length of the projection period plays a significant role in the accuracy and reliability of cash flow estimates during a DCF analysis. When the projection period is extended, the estimation of future cash flows becomes more uncertain due to several factors, including changes in market conditions, competitive dynamics, and company performance, which become harder to predict over longer horizons. This introduces increased volatility and risk, as future cash flows are influenced by numerous unpredictable variables over time.

Furthermore, longer projection periods may require additional assumptions about growth rates, market trends, and operational efficiencies that can amplify this uncertainty. Stakeholders must often rely on estimations further into the future, which inherently carries more risk than short-term projections. Therefore, while a longer projection period may provide a more comprehensive view of a company's potential, it does not necessarily lead to greater accuracy in cash flow estimations. This highlights why option A is a fitting answer.