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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) 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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This document was uploaded on 01/19/2014.
- Fall '13