Chapter 7 Capital Investments and Cash Flows. 2 Capital Budgeting Generating Ideas Estimate the Cash...
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Transcript of Chapter 7 Capital Investments and Cash Flows. 2 Capital Budgeting Generating Ideas Estimate the Cash...
![Page 1: Chapter 7 Capital Investments and Cash Flows. 2 Capital Budgeting Generating Ideas Estimate the Cash Outflows and Inflows Evaluate the Risks Select Projects.](https://reader036.fdocuments.in/reader036/viewer/2022083006/56649f345503460f94c52273/html5/thumbnails/1.jpg)
Chapter 7
Capital Investments
and
Cash Flows
![Page 2: Chapter 7 Capital Investments and Cash Flows. 2 Capital Budgeting Generating Ideas Estimate the Cash Outflows and Inflows Evaluate the Risks Select Projects.](https://reader036.fdocuments.in/reader036/viewer/2022083006/56649f345503460f94c52273/html5/thumbnails/2.jpg)
2
Capital Budgeting
• Generating Ideas
• Estimate the Cash Outflows and Inflows
• Evaluate the Risks
• Select Projects
• Monitor the Accepted Projects
![Page 3: Chapter 7 Capital Investments and Cash Flows. 2 Capital Budgeting Generating Ideas Estimate the Cash Outflows and Inflows Evaluate the Risks Select Projects.](https://reader036.fdocuments.in/reader036/viewer/2022083006/56649f345503460f94c52273/html5/thumbnails/3.jpg)
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Sources of Ideas
• Committees
• R&D
• Employees
• Vendors
• Competition
![Page 4: Chapter 7 Capital Investments and Cash Flows. 2 Capital Budgeting Generating Ideas Estimate the Cash Outflows and Inflows Evaluate the Risks Select Projects.](https://reader036.fdocuments.in/reader036/viewer/2022083006/56649f345503460f94c52273/html5/thumbnails/4.jpg)
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Sources of Cash Flows
• Direct Cash Flows
• Indirect Cash Flows
• Incremental Cash Flows
• Sunk Costs
![Page 5: Chapter 7 Capital Investments and Cash Flows. 2 Capital Budgeting Generating Ideas Estimate the Cash Outflows and Inflows Evaluate the Risks Select Projects.](https://reader036.fdocuments.in/reader036/viewer/2022083006/56649f345503460f94c52273/html5/thumbnails/5.jpg)
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Measuring Cash Flows
As with Most Investment:
Cash Flows Upfront
Cash Flows Along the Way
Cash Flows at End of Project
![Page 6: Chapter 7 Capital Investments and Cash Flows. 2 Capital Budgeting Generating Ideas Estimate the Cash Outflows and Inflows Evaluate the Risks Select Projects.](https://reader036.fdocuments.in/reader036/viewer/2022083006/56649f345503460f94c52273/html5/thumbnails/6.jpg)
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NICO – Net InvestmentCash Outflow (Upfront Cash Flow)
• Asset Acquisition - Investment in Depreciable Assets
• Asset Disposition - Tax Effect on Disposition
• Changes in Net Working Capital
![Page 7: Chapter 7 Capital Investments and Cash Flows. 2 Capital Budgeting Generating Ideas Estimate the Cash Outflows and Inflows Evaluate the Risks Select Projects.](https://reader036.fdocuments.in/reader036/viewer/2022083006/56649f345503460f94c52273/html5/thumbnails/7.jpg)
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Tax Effects on Asset Disposition
Dispose of Asset for More than Book Value:
Disposition price – Tax on Gain
Dispose of Asset for Less than Book Value:
Disposition price + Tax Savings on Loss
![Page 8: Chapter 7 Capital Investments and Cash Flows. 2 Capital Budgeting Generating Ideas Estimate the Cash Outflows and Inflows Evaluate the Risks Select Projects.](https://reader036.fdocuments.in/reader036/viewer/2022083006/56649f345503460f94c52273/html5/thumbnails/8.jpg)
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Annual Cash Flow Changes(Along the Way)
ΔOCF = ΔEAT + ΔDEP
ΔOCF = (ΔREV - ΔOP EXP - ΔDEP)(1 - T) + ΔDep
Depreciation
MACRS Class Life
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MACRS Tables
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Disposal/Terminal Cash Flows
• Asset Disposition - Tax Effect on Disposition
• Recovery of Net Working Capital