Example the initial investment operating cash inflows

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Unformatted text preview: flows attributable to the proposed project. They represent, in a cash flow sense, how much better or worse off the firm will be if it chooses to implement the proposal. The relevant cash flows for Powell Corporation’s proposed replacement expenditure can now be shown graphically, on a time line. Note that because the new asset is assumed to be sold at the end of its 5-year usable life, the year-6 incremental operating cash inflow calculated in Table 8.9 has no relevance; the terminal cash flow effectively replaces this value in the analysis. As the following time line shows, the relevant cash flows follow a conventional cash flow pattern. Time line for Powell Corporation’s relevant cash flows with the proposed machine $26,480 $57,680 $55,600 $61,200 1 2 3 4 $ 55,000 Terminal Cash Flow 73,200 Operating Cash Inflow $128,200 Total Cash Flow 0 $221,160 End of Year 5 378 PART 3 Long-Term Investment Decisions Techniques for analyzing conventional cash flow patterns to determine whether to undertake a proposed capital investment are discussed in Chapter 9. Review Question 8–16 Diagram and describe the three components of the relevant cash flows for a capital budgeting project. S U M M A RY FOCUS ON VALUE A key responsibility of financial managers is to revi...
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This document was uploaded on 01/19/2014.

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