finance

For maximization of the output of a business plan , it becomes extremely critical to study and access in an unbiased manner , the source , pattern and nature of the cash that would be flowing in and out of project . The task in itself becomes quite challenging , given the complexity of the project per se and the multitude of variables involved . The importance of accurate cash flow estimation can be made by the fact that the success of the project directly depends upon the accuracy of the cash flow estimation . If Cash flow estimation is

correct -project succeeds if cash flow estimation is incorrect-project fails

As the name suggests , cash flow estimations are just the projections although great care is taken to reduce the margins of errors , but errors do occur and the results can sometimes get biased . Experts say that that these estimations always run the risk of overestimation or underestimation . Overestimation can result when the initial investments are estimated to be low while the incoming cash flows are estimated to be high . Several factors can result in this fallacy lack of sponsor 's experience is one such factor that can result in miscalculation of estimated profits . While this can just be a error at times , at other times managers seem to be consciously underplaying the initial costs to attract the investors

Underestimation of the profits is another problem that may arise due to over conscious attitude on the part sponsors who tend to overlook and ignore the future opportunities that...