2.4 Stud%20Week%208%20Lect%202%20Chung%20Engineering%20Example.ppt

2.4 Stud%20Week%208%20Lect%202%20Chung%20Engineering%20Example.ppt

Info iconThis preview shows pages 1–8. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Chung Engineering Example Week 8 Lecture 2 What are included in the cash flows? Opportunity costs If we sell an asset to fund a project, we must include the PV of the foregone future CFs Cannibalisation effects CFs of a new product may reduce CFs from an existing product of the firm Changes in net operating working capital ( NOWC) NOWC = CA minus spontaneous CL for each period Simplifying assumption in Chung is: NOWC YEAR 1 = NOWC YEAR2 = = NOWC YEAR t Hence Include impact of inflation Discount nominal CFs at nominal discount rate What costs do we exclude ? Sunk costs For instance, preliminary feasibility survey costs Overhead These exist _______________ the project is adopted Interest costs These are ____________ costs and are _________________ Or: calculations have these included in the _______ Incremental cashflows Initial investment (year 0) cost of equipment + shipping/installation May be over several years and require a PV calculation proceeds from sale of old equipment If replacement project increase in net operating working capital New inventory & Cash Float have to be funded 0 1 2 3 4 5 6 7 8 9 10 11 12 13 Draw Timeline-300K -700k -1m -400k CFAT Depr CFAT Depr Terminal Values CFAT Depr CFAT CFAT CFAT CFAT CFAT CFAT CFAT Depr Depr Depr Depr Depr Depr Depr Initial Costs Find Present Value of outlays Use list function OR formulas PV of outlays: PV Initial $ 1,953,491 Operating cashflows incremental revenues less expenses changes in net operating working capital NOWC=CA-CL This periods NOWC minus last periods NOWC...
View Full Document

This note was uploaded on 12/23/2009 for the course BCOM FINC 201 taught by Professor Debrak.reed during the Spring '09 term at Canterbury.

Page1 / 30

2.4 Stud%20Week%208%20Lect%202%20Chung%20Engineering%20Example.ppt

This preview shows document pages 1 - 8. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online