FIN-3403 Lecture Notes - Lecture 10: Cash Flow, Pro Forma, Macrs
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Points on data development: use cash flows, not accounting values, relevant cash flows, cash flo(cid:449)s that o(cid:272)(cid:272)u(cid:396) (cid:894)o(cid:396) do(cid:374)"t o(cid:272)(cid:272)u(cid:396)(cid:895) (cid:271)e(cid:272)ause a p(cid:396)oje(cid:272)t is u(cid:374)de(cid:396)take(cid:374) Incremental cash flows: all (cid:272)ha(cid:374)ges i(cid:374) the fi(cid:396)(cid:373)"s futu(cid:396)e (cid:272)ash flo(cid:449)s that a(cid:396)e a di(cid:396)e(cid:272)t (cid:272)o(cid:374)se(cid:395)ue(cid:374)(cid:272)e of taking the project, use after-tax cash flows, not pretax the tax bill is a cash outlay. When looking at cash flows: do"s: Include opportunity costs: any cash flow lost or forgone by taking one course of action rather than another, applies to any asset or resource that has value if sold, or leased, rather than used. Include side effects: projects may affect one another sometimes helping, sometimes hurting, erosion (or cannibalism, new project revenues gained at the expense of existing products/services, do(cid:374)"t ha(cid:448)e to (cid:271)e (cid:374)egati(cid:448)e. Introducing a new item to a line of products may attract more attention to other items in the line and bring new business to existing items.