Unformatted text preview: te spending? Will there be inflation?
Market conditions -- Is the market competitive? How long does it take competitors to enter into
the market? Are there any barriers, such as patents or trademarks that will keep competitors
away? Is there sufficient supply of raw materials and labor? How much will raw materials and
labor cost in the future?
Taxes -- What will tax rates be? Will Congress alter the tax system?
Interest rates -- What will be the cost of raising capital in future years?
International conditions -- Will the exchange rate between different countries' currencies change?
Are the governments of the countries in which the company does business stable? These sources of uncertainty influence future cash flows. To evaluate and select among projects that will
maximize owners' wealth, we need to assess the uncertainty associated with a project's cash flows. In
evaluating a capital project, we are concerned with measuring its risk. Relevant cash flow risk
Financial managers worry about risk because the suppliers of capital -- the creditors and owners --demand c...
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- Spring '07