# L_13_ - Lecture Outline Lecture 13 Project Analysis and...

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Lecture Outline Lecture 13 Project Analysis and Evaluation Lecture Organization OCF Scenario analysis

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Project Evaluation: Project valuation - the application of one or more capital budgeting decision rules to estimated relevant project cash flows in order to make the investment decision. Project Cash Flow per period = (CF) = + Operating cash flow - Changes in net working capital - Capital spending
Alternative Definitions of OCF Let: OCF = operating cash flow S = sales C = operating costs D = depreciation T = corporate tax rate

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Alternative Definitions of OCF (concluded) The Tax-Shield Approach OCF = (S - C - D) + D - (S - C - D) × T = = The Bottom-Up Approach OCF = (S - C - D) + D - (S - C - D) × T = = The Top-Down Approach OCF = (S - C - D) + D - (S - C - D) × T
Solution to Problem 10.5 A proposed new project has projected sales of \$75,000, costs of \$40,000, and depreciation of \$2,500. The tax rate is 34 percent. Calculate OCF using the four different approaches described in the chapter and verify that the answer is the same in each case. Sales

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## This note was uploaded on 06/22/2011 for the course FINA 365 taught by Professor Koch during the Spring '08 term at South Carolina.

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L_13_ - Lecture Outline Lecture 13 Project Analysis and...

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