2) Briefly discuss sources of uncertainty for future cash flows

Expert Solution

Various sources of uncertainty in future cash flows:

1. Economic conditions: Various factors like Monetary Policy, Fiscal policy influences interest rates, spending, investments which will have a bearing on risk exposures of future cash flows. Further inflation, recessions, unemployment levels do also contribute to uncertainty.

2. International factors also influences if the cash flows have exposure to foreign currencies. Changes in exchange rate will expose cash flows to uncertainty.

3. Market conditions: Market forces, competition do influence sales price, sales volume, availability of raw materials, availability of labor. These are sources of uncertainty in cash flows.

4. Technology: Changes in technology may affect cash flows. Certain industries like telecom, information technology faces high uncertainty due to fast changes in technology.

5. Tax rates: Possible changes in taxation expose cash flows to uncertainty.

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