The terminal cash flow is the after tax nonoperating

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ncrease from $4,000 in its first year to $10,000 in its tenth and final year. The terminal cash flow is the after-tax nonoperating cash flow occurring in the final year of the project. It is usually attributable to liquidation of the project. In this case it is $25,000, received at the end of the project’s 10-year life. Note that the terminal cash flow does not include the $10,000 operating cash inflow for year 10. Expansion versus Replacement Cash Flows Developing relevant cash flow estimates is most straightforward in the case of expansion decisions. In this case, the initial investment, operating cash inflows, and terminal cash flow are merely the after-tax cash outflow and inflows associated with the proposed capital expenditure. Identifying relevant cash flows for replacement decisions is more complicated, because the firm must identify the incremental cash outflow and inflows that would result from the proposed replacement. The initial investment in the case of replacement is the difference between the initial investment needed to acquire the n...
View Full Document

This document was uploaded on 01/19/2014.

Ask a homework question - tutors are online