Increase in working capital.docx - Increase in working...

This preview shows 1 out of 5 pages.

- Increase in working capital OUTFLOW - WC likely to increase in early/middle years of project - When project comes to end – all investments in WC over life are recovered and treated as cash INFLOW INCLUDE OPPORTUNITY COST Opp cost of a resource is the cash it could generate for the company if the
Image of page 1

Subscribe to view the full document.

project were rejected and the resource was sold or put to some other productive use Should judge projects on basis of “with or without”, “not before vs after” o Inc cost = Difference b/w cash flows with and without investment Sunk costs, allocated overhead costs, inflation and salvage value Ignore past and irreversible sunk costs
Image of page 2
Ignore accountants allocation of existing overheads INCLUDE only extra overhead expenses generated by a project Remember salvage value (net of any taxes) when project comes to an end Treat inflation consistently by discounting nominal cash flows at nominal rate
Image of page 3

Subscribe to view the full document.

of return (observed in the market) and real cash flows at real rate EAC
Image of page 4
Image of page 5
You've reached the end of this preview.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern