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Ch9 Cash Flow HO

# Ch9 Cash Flow HO - I Types of Cash Flows(in year n A From...

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I. Types of Cash Flows (in year n) A. From Operating Activities Var Description Tax Infl R n Gross Revenue or Income (or savings) from sales of goods and services (or savings attributed to the project) taxed yes E n Operating Expenses costs of items "used up" within the year including: - costs of materials etc. for goods sold - salaries and wages - energy, advertising, property and sales taxes - rent/lease payments deduct yes T n Income Taxes function of Taxable Income, TI n (see table on p. 329 in Park) For an incremental project in a large company: T n = TI n * t m where t m is the marginal tax rate - changes as other streams are affected by inflation B. From Investment Activities Var Description Tax Infl P n Investment in Capital Assets (is a flow in the year an asset is purchased) is the cost base for items that last for more than one year: - non-depreciable assets (land, stocks, bonds) - depreciable assets (buildings, equipment, etc) no, creates deductions no, if bought in first year D n Depreciation (not an actual cash flow , but used to calculate TI) yes no S n Salvage Value of Capital Assets (is a flow in the year an asset is sold) >BV taxed (G n ) yes G n Gains Tax tax on the excess of salvage value S n over book value B n (is a flow in the year sold) Depending on the whims of Congress, gains are taxed at the ordinary income rate or at a lower rate; it can be quite complicated. Assuming the same rate for simplicity, for large companies: G n = (S n - BV n ) * t m where Book Value BV n : = cost base, I, for non-depreciable assets = I - annual depreciation for the asset through the year sold yes changes as other streams are affected by inflation W n Working Capital Investment

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Ch9 Cash Flow HO - I Types of Cash Flows(in year n A From...

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