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New Chapter 12 Class Notes

New Chapter 12 Class Notes - Chapter 12 Cash Flow...

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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 2. 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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New Chapter 12 Class Notes - Chapter 12 Cash Flow...

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