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Lecture 2

FIN 401 Lecture Notes - Lecture 2: Operating Cash Flow, Capital Cost Allowance, Tax Shield


Department
Finance
Course Code
FIN 401
Professor
Samuel Alaguarajah
Lecture
2

This preview shows pages 1-3. to view the full 12 pages of the document.
Chapter 10 Making Capital
Investment Decisions

 determine the relevant cash ows 
 
   !"!"#
$ % &'
(   )"
* %+
,  -  
. 
/ 
0#12
3#
02#
4#
&!2!!"#
&"'! 
#
  
Understand how to determine the relevant cash ows
for a proposed project
Relevant Cash Flows
o#   "!"
 5 6
#
o
& +!2 "
#
Asking the right question: Will this cash $ow occur (or not) only if we
accept the project
o71 8
o91 8 
o01  56 

Only pages 1-3 are available for preview. Some parts have been intentionally blurred.

Common types of cash $ows
Sunk cost – cost that have been incurred in the past
3 2:;<'"8 
  =>?@  
 2  "!  "
> 
 "!"
Opportunity cost – costs of lost options
'  
3 ?@&
 A-  8
 "
Side e,ects
0!12
  !
 '!"  >2

9"!1
8 ! 
 '!"8 &"B'
#""C 

Changes in net working capital
3"9DD
!"#3
 /E 
 "%""9D28 
F#  !"!4
- 9D! 

Financing cost
D 2" GH  "
3
  8"
2 382!I
!>""
  !8 
o3#!
oE!
o5&6

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Know how to project the CF and determine if project is
acceptable
Pro Forma Statements and Cash Flows
o "!" !"8! 
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o !"
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&J/M"M"9D
oK'03
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R5P(NQ 6 P(8NNN
E2 P,(8NNN
' P8NNN
<!5PSN8NNNQ6 PN8NNN
K%3> P8NNN
>'5$T6 P8N
93 P8,.N
oK'10:- 
7 N
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9'
&
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>
3
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92'" 
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7 N   
/ (8,.N (8,.N (8,.N
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"
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& BN8NNN (8,.N (8,.N ,8,.N
o/JK%3>L<!M>'J8NNNLN8NNNM8NJ(8,.N
o/J93L<!J8,.NLN8NNNJ(8,.N
o"9DUU
D9DNN8NNN
D" 58
8F6
o"
9"J"2'L!J5*N8NNNM
SN8NNN6LN8NNNJN
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