Cash flow projections are a central component to the analysis of new investment ideas. In most...

Cash flow projections are a central component to the analysis of new investment ideas. In most firms, the person responsible for making these projections is not the same person who generated the investment idea in the first place. Why?

Expert Solution

Generation of an idea is completely different from projection of cash flows related to a proposed investment project.

The investment Idea related to a proposed project is based upon the viability of the project,generation of different resources related to the project as well as utilisation of resources in an effective and efficient manner in order to maximize the gains which could be monetary and non monetary in nature.

While, projection of cash flows is based upon various kinds of trend analysis and past performance study as well as comparison in respect with similar projects and it is a highly complex skill which need a different level of expertise. it is not related to decision making, rather it is is related to number crunching which take into account various kind of probabilities and statistics in order to arrive at a projector future cash flow.

So the persons who are related with selection of investment based upon ideas and persons who are entitled with the task of forecasting of cash flows are different because of these above listed reasons.

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