Final answer:
Early project cash flows are generally negative, as startups incur initial expenses before generating revenue. They face challenges in raising financial capital without profit history. This trend can vary with economic conditions, as seen in the late 1990s tech boom and the 2008 recession.
Step-by-step explanation:
Early cash flows for projects are typically negative. This is because firms that are just starting out usually have to spend money on developing a product or service, such as research and development, production, and marketing, before they can start selling and generating revenue.
In the early stages, these firms might have an idea or a prototype, but with few to no customers, they are likely not earning profits yet. Therefore, they encounter the challenge of raising financial capital to fund these initial expenses without a proven track record of profitability. This dynamic is part of why new ventures often seek investments or loans to cover their upfront costs.
For instance, during the technology boom of the late 1990s, businesses were very optimistic about new technology and thus their demand for financial capital increased significantly. On the other hand, during economic downturns like the 2008 and 2009 Great Recession, demand for financial capital tended to decrease as confidence in achieving a high rate of return diminished.