How may a financial analyst adjust a DCF model for a company that is expected to increase its sales of eco-friendly products?

Adjusting a discounted cash flow (DCF) model for a company expected to increase its sales of eco-friendly products involves revising projected revenues and growth rates. This adjustment reflects the anticipated revenue increase from growing demand for sustainable products, which can lead to higher sales volumes and improved market positioning.

When a company invests in eco-friendly products or shifts its focus towards sustainability, it often experiences a positive reception from consumers, leading to an uptick in sales. Analysts must take this potential growth into account, altering the revenue projections to capture the expected increase in sales. Higher revenues can also lead to a higher growth rate assumption over the forecasted period, demonstrating the company’s commitment to sustainability and its ability to capitalize on this trend within the market.

The other options involve adjustments that may not accurately represent the company's financial performance in relation to eco-friendly product growth. Increasing the discount rate could capture risk factors but may not correlate directly to expected increases in eco-friendly sales; similarly, reducing operating expenses could obscure genuine performance metrics. Eliminating taxes from projections is generally not advisable as it removes a critical component of a company's financial obligations and may misrepresent its net cash flows. Therefore, revising projected revenues and growth rates is the most relevant and accurate approach to reflecting the expected