Which of the following is a drawback of overly optimistic growth projections?

Overly optimistic growth projections can significantly distort the valuation process by creating a misleading picture of a company's future financial health. When projections are excessively positive, they can inflate the expected cash flows and lead to an unrealistically high valuation. This misrepresentation not only affects the perceived value of the company but can also lead to poor investment decisions, as stakeholders may place too much trust in these inflated figures, ignoring potential risks and downturns.

In contrast, the other options represent perspectives that do not align with the inherent risks associated with overly optimistic projections. Enhancing credibility with investors typically requires realistic and substantiated growth estimates. Additionally, realistic budgeting is essential for effective financial management and planning, while reflecting historical performance aligns more closely with conservative and factual earnings assessments rather than overly ambitious growth forecasts. Therefore, the focus should be on accuracy rather than baseless optimism in financial modeling and valuations.