The risk of error in estimating a project’s cash flows or required rate of return is called forecasting risk or estimation risk. The following table reviews some source of estimation risk associated with cash flows and required rate return. Expected Cash Flows Required Rates of Return Political risk: Real risk-free return: Blocked currencies Supply/demand for funds Tariffs, quotas, embargoes Military conflict Macroeconomic consumption patterns Unstable government Investor optimism/pessimism Long-run real economic growth Fluctuating exchange rates Central bank policy Expected inflation: Monetary policy Fiscal policy: Commodity prices Government spending Tax policy Risk premium: Systematic risk Inadequate or incorrect: Political risk Strategic analysis Exchange rate risk Market research Business risk Pricing policy Financial risk Competitor retaliation Construction delays Delay in R&D, manufacturing, or production Work stoppages or strikes Technology obsolescence