FIN 3104 Lecture Notes - Lecture 14: Icloud, Cash Flow, Sunk Costs
27 Oct 2016
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R&d, test, expenditure, future sales: account for opportunity costs, using stuff that you already own, the cost you should charge is the most profitable alternative, decide of overhead costs are truly incremental cash flows, university bookstore volume ii. Ignore interest payments and financing flows: if we subtracted out dividends and interest payments we would be double counting them - once when we subtract them, and once when we discount the cash flows back to present. Step 1: estimating a project"s operating cash flows. Step 2: calculating a project"s working capital requirements. Operating cash flow = ebit or net operating income taxes + depreciation expense. Investment in net operating working capital = (increase in ar) + (increase in inventories) (increase in ap) Free cash flow = ebit or net operating income taxes + depreciation expense capital expenditures change in net operating working capital. Step 1: differences between with and without the project. Step 2: ebit taxes + deprec net wc.
