BFF2140 Lecture 5: BFF2140 – Week 5 Lecture Capital Budgeting II Cash Flow Analysis and the Replacement Decision
Document Summary
Compare mutually exclusive projects that have different lives. Explain the principles used in estimating project cash flows. Cash flow analysis major cash flow components. Example 1 mutually exclusive projects with different lives. Repeat projects until they begin and end at the same time - like we just did with the air cleaners. Wc is cash employed to run day-to-day operations of a firm (e. g. , investment in inventory) Not consumed but rather employed for a period of time. Increase in wc during a period means more cash is employed, i. e. , cash outflow. Decrease in wc during a period means less cash is employed, i. e. , cash inflow. Sales must be recorded on income statement when made, not when cash is received. Have to record cogs when corresponding sales are made, regardless of whether our suppliers have been paid yet. Finally, ha(cid:448)e to (cid:271)u(cid:455) i(cid:374)(cid:448)e(cid:374)tor(cid:455) to support sales although ha(cid:448)e(cid:374)"t (cid:272)olle(cid:272)ted (cid:272)ash (cid:455)et.
