BFC2140 Lecture Notes - Lecture 5: Cash Flow, Tax Shelter, Net Present Value
17 Oct 2018
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Document Summary
Compare mutually exclusive projects that have different lives. Explain the principles used in estimating project cash flows. Cash flow analysis - major cash flow components. Cash flow analysis - the replacement decision. Chapter 9: fundamentals of capital budgeting (p. 257-276) Straight line depreciation - asset(cid:859)s (cid:272)ost is di(cid:448)ided e(cid:395)ually o(cid:448)e(cid:396) its life: net working capital (nwc, cash employed to run day-to-day operations of a firm (e. g. investment in inventory, not consumed, but employed for a period of time. Increase in nwc means more cash is employed i. e. cash outflow. If wc required for a project increases from period t-1 to period t, then increase in nwc is a negative cf to project: changes in nwc are considered separately because: Sales are recorded on income statement when made, not when cash is received: cogs is recorded when sales are made, not when suppliers have been paid.
