Unformatted text preview: nvestment
The relevant cash outflow for a
proposed project at time zero.
operating cash inflows
The incremental after-tax cash
inflows resulting from implementation of a project during its life.
terminal cash flow
The after-tax nonoperating cash
flow occurring in the final year of
a project. It is usually attributable to liquidation of the project. The cash flows of any project having the conventional pattern can include three
basic components: (1) an initial investment, (2) operating cash inflows, and (3)
terminal cash flow. All projects—whether for expansion, replacement, renewal,
or some other purpose—have the first two components. Some, however, lack the
final component, terminal cash flow.
Figure 8.3 depicts on a time line the cash flows for a project. The initial investment for the proposed project is $50,000. This is the relevant cash outflow at time
zero. The operating cash inflows, which are the incremental after-tax cash inflows
resulting from implementation of the project during its life, gradually i...
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