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Unformatted text preview: . As we did when
discussing Cost Volume Profit analysis, we will assume that federal income tax is a percentage
of net income. Because net income is computed using accounting earnings, not cash flows, we
will need to think about how these two measures differ in order to evaluate the effect of taxes.
Recall that there are three primary types of cash flows associated with a capital budgeting
(1) An initial cash outflow for the investment in the project. Generally we assume that this
happens at the very beginning of the project (time 0).
(2) Periodic future cash inflows from the project. These are the additional revenues and
decreases in costs that result from the project. We assume they happen at the end of the
period (times 1, 2, etc)
(3) A one-time cash inflow that happens at the end of the life of the project...
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This note was uploaded on 09/29/2011 for the course 06A 002 taught by Professor Stuff during the Spring '11 term at University of Iowa.
- Spring '11