{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

WFF5013_ReviewCBProcess - Making Capital Investment...

Info icon This preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Making Capital Investment Decision Identifying the relevant cash flows In capital budgeting analysis, cash flows to be included are those that WILL OCCUR IF the project is accepted. These cash flows are called INCREMENTAL CASH FLOWS The stand-alone principle allows us to analyse each project in isolation from the company simply by focusing on incremental cash flows
Image of page 1

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

View Full Document Right Arrow Icon
2 Ask yourself this question – Will this cash flow occur ONLY if we accept the project? If the answer is yes, include in your analysis. If the answer is “part of it”, what should you do?
Image of page 2
3 What Cash Flows to use? Incremental after-tax cash flows - Cash flows only - Opportunity costs & sunk costs - Side effects, externalities - Changes in working capital - Ignore financing cost - Depreciation
Image of page 3

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

View Full Document Right Arrow Icon
4 About Working Capital Why do we consider changes in NOWC separately? Generally Accepted Accounting Principle (GAAP) requires sales to be recorded in income statement when made, NOT WHEN CASH IS RECEIVED Record cost of goods sold when corresponding sales are made, WHETHER OR NOT WE HAVE ACTUALLY PAID our suppliers We have to buy inventory to support sales although we HAVE NOT COLLECTED CASH yet
Image of page 4
5 About Working Capital Net operating working capital Current assets minus non-interest-bearing current liabilities (more specifically, expressed as cash & marketable securities, AR and inventories less accounts payables and accruals 1 ) ( 1 This definition assumes that cash and marketable securities on the
Image of page 5

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

View Full Document Right Arrow Icon
Image of page 6
This is the end of the preview. Sign up to access the rest of the document.

{[ 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