FINA 2201 Chapter Notes - Chapter 12: Sunk Costs, Cash Flow, Accelerated Depreciation
Document Summary
We will assume that investments in fixed assets and net operating working capital occur only at t=0. Once the project is completed the company sells the project"s fixed assets and inventory and receives cash: this can be thought of as a negative capital expenditure (cid:1) The price that company receives for a fixed asset at the end of the project is often referred to as its salvage value. The company will have to pay taxes if the asset"s salvage value exceeds its book value (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) The company receives a tax credit if it sells its fixed asset for less than book value. Ideally cash flows should be dealt with on a daily basis: however this is not practical. For this reason we assume cash flows are incurred at the end of the year. Are cash flows that will occur if and only if some specific event occurs.