CapitalBudgeting - CapitalBudgeting CapitalBudgeting 237...

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Capital Budgeting FINC 3610 Yost Capital Budgeting 237 Capital Budgeting What is capital budgeting? How do compute the value of a bond? How do we compute the value of a share of stock? How do we compute the value of a project? 238 Relevant Incremental Cash Flows Sunk Costs? Opportunity Costs? Side Effects? Changes in Net Working Capital? Taxes? Financing Costs? 239
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Capital Budgeting FINC 3610 Yost Net Operating Cash Flows 240 Project Cash Flows Net Operating Cash Flows Capital Expenditures /+ Increases/Decreases in Net Working Capital + Afte tax Salvage Value After tax Salvage Value ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ =P r o j e c t Cash Flows *These are all INCREMENTAL cash flows. 241 Net Working Capital What is net working capital? Why include it? Is it a cash inflow or a cash outflow? *Don’t forget to recover net working capital at the end of the project. 242
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Capital Budgeting FINC 3610 Yost Salvage Value and Taxes How do we calculate the book value of an asset? What if we sell an asset for more than book value? In year 4, we sell a machine for $1,000. The book value of the machine is $800. The tax rate is 30%. What is the after tax salvage value?
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CapitalBudgeting - CapitalBudgeting CapitalBudgeting 237...

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