Bus320p.12

Bus320p.12 - Chapter 12 Cash Flow Estimation I. Which cash...

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Unformatted text preview: Chapter 12 Cash Flow Estimation I. Which cash flows are relevant? A. Use cash flows, not accounting profits. B. Use after-tax cash flows. C. Consider Opportunity Costs. D. Consider the effects of externalities or erosion. E. Do not consider sunk costs. F. Do not consider interest payments or financing costs. G. Purchase cost includes shipping costs and installation expenses. H. Consider changes in Net Working Capital II. Depreciation Use MACRS; Example: $100,000 asset with 5 year life. Marginal tax rate = 30% Year Rate Depreciation Book Value 1 20% $20,000 $80,000 2 32% 32,000 48,000 3 19% 19,000 29,000 4 12% 12,000 17,000 5 11% 11,000 6,000 6 6% 6,000 0 Case #1 : Sell asset for $35,000 after 3 years. Sale Price $35,000 - Book Value 29,000 Gain $ 6,000 Tax Rate x .30 x ....
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This note was uploaded on 04/21/2008 for the course BUS 320 taught by Professor Sloan during the Spring '08 term at N.C. State.

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Bus320p.12 - Chapter 12 Cash Flow Estimation I. Which cash...

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