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7 occasionally this cash outflow is intentionally

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Unformatted text preview: they are therefore ignored in subsequent discussions. 7. Occasionally, this cash outflow is intentionally ignored to enhance the attractiveness of a proposed investment and thereby improve its likelihood of acceptance. Similar intentional omissions and/or overly optimistic estimates are sometimes made to enhance project acceptance. The presence of formal review and analysis procedures should help the firm to ensure that capital budgeting cash flow estimates are realistic and unbiased and that the “best” projects—those that make the maximum contribution to owner wealth—are accepted. CHAPTER 8 TABLE 8.4 Capital Budgeting Cash Flows Calculation of Change in Net Working Capital for Danson Company Current account Change in balance Cash $ 4,000 Accounts receivable 10,000 Inventories 8,000 (1) Current assets $22,000 Accounts payable $ 7,000 2,000 Accruals (2) Current liabilities Change in net working capital [(1) change in net working capital The difference between a change in current assets and a change in current liabilities. EXAMPLE 369 9,000 (2)] $13,000 for more cash to support expanded operations, more accounts receivable and inventories to support increased sales, and more accounts payable and accruals to support increased out...
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