BFN 110 Lecture Notes - Lecture 10: Tunxis Community College, Cash Flow, Capital Budgeting

• School: Tunxis Community College
• Department: Business – Finance
• Course: BFN 110
• Professor: garside

Document Summary

Calculate the relevant incremental cash flows for a capital budgeting analysis. The first important step in capital budgeting is decide what are the relevant cash flows. Cash flow and accounting profit aren"t equivalent. Incremental cash flows fall into one of three categories. Cash flows at the start (year 0) Cf"s over the life (year 1 to year n) Cf timing is exactly a multiple of year. Cf"s occur at the beginning or the end of the years only. Occur at the beginning of a project"s life initial cf"s. Establishment expenses, proceeds from the sale of the old machine, investment in working capital, market value of assets owned that are to be used in the project (the opportunity cost) Incremental cf"s are changes in cf"s that occur from accepting the. To determine if a cf is incremental ask yourself the question. A cf that occurs regardless of whether an investment proceeds or doesn"t proceed isn"t incremental.