BU393 Chapter Notes - Chapter 10: Capital Cost Allowance, Operating Cash Flow, Cash Flow
Document Summary
Chapter 10: capital budgeting and estimating cash flows. The incremental approach: calculating the npv of the incremental cash flows, e(cid:454). Expansion projects: only cost of new asset is considered, no old costs and revenues considered, 1) compute initial cash flow, start of the project. Initial purchase price (cash outflow), minus shipping and installation (more cash outflows), minus increase in net working capital. Include taxes, tariffs, other expenses part of the cost, installation, shipping: changes in working capital, net working capital: current assets current liabilities. Tax: 3) discuss terminal cash flow, occurs at the end, assume that terminal year is a complete year, terminal year cash flows = ocf + net salvage + decrease in nwc. Replacement projects: two scenarios: keeping old equipment and replacing. Initial cash flows: operating cash flows, old ocf = ebitold(1 t) + depreciationold, new ocf = ebitnew (1 t) + depreciationnew.
