MGMT310NotesChpt10

MGMT310NotesChpt10 - CashFlowAnalysis ReviewandPreview...

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Cash Flow Analysis Review and Preview Tools you have Time value of money Capital Asset Pricing Model Discounted Cash Flow (NPV) Skills you need Projecting cash flows Identifying appropriate cash flows Estimating demand, pricing, costs, duration MGMT 310: Spring 2011 Dr. Amanda Thompson 1
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Only include ___________________ cash flows Changes in CF that only occur if ________________ _________________________ Comparing the firm CFs with the project to the firm CFs without the project Key Question: Will this cash flow occur ONLY if we undertake the project? Yes, No, Partially?? Stand alone principle After determining incremental cash flows Can analyze each project in isolation from the firm Incremental Cash Flows Example:Wal mart Subway Project:Wal mart is considering whether or not to open a Subway Restaurant inside its store…does the project appear to be profitable? 400 sandwiches/day at $5 each $480/day in employee costs $1,000/day in COGs (bread, lettuce, meat, napkins…) $3,000/month in mortgage costs $250/month heating/cooling bill $400/month electricity bill One time $5,000 consulting feasibility study that provided our estimates One time $2,000 to pay for existing flooring One time $40,000 to purchase equipment (refrigerators, tables, chairs…) Taxes at 40% MGMT 310: Spring 2011 Dr. Amanda Thompson 2
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COGS – Cost of Goods Sold Sunk costs–costs that have accrued ______________ Opportunity costs–costs of _____________________ Use the current market value of existing assets Side effects Positive side effects – benefits to other projects Negative side effects–costs to other projects Changes in net working capital Usually CF outflow at beginning of project, inflow at end Financing costs (interest, dividends) Not included, we want project costs independent of financing Common Types of CF Walmart Example (cont.) New revelations
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MGMT310NotesChpt10 - CashFlowAnalysis ReviewandPreview...

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