Ch9 Cash Flow HO

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

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
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
Background image of page 1

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

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/03/2012 for the course ENGIN 106 taught by Professor Fizali during the Spring '12 term at Laney College.

Page1 / 5

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

This preview shows document pages 1 - 2. Sign up to view the full document.

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