Cost of Prediction Error-Capital Investments (LO.4): NPV, Inc., determined that an investment of $250,000 in an automated ice-removal process would have a net present value of $290,000 using a 10 percent after-tax discount rate. Company management decided not to conduct further market testing and made the investment. Two years later, the company reevaluated the investment based on a two-year sales and production history. NPV management determined that the net present value of the investment should have been a negative $15,000. The manager who recommended the investment originally stated, "Although the project is not as profitable as we expected, we are receiving decent profits on the project and should not be concerned about the decline. All of you know that sometimes these projects do not turn out as well as we hope."

Required: Is the manager's assessment of the situation correct? (Hint: Consider the cost of prediction error.)