BMGT 340 Lecture Notes - Lecture 11: Free Cash Flow, Capital Budgeting, Cash Flow

• School: University of Maryland
• Department: Business and Management
• Course: BMGT 340
• Professor: Michael Padhi

Document Summary

Chapter 9: intro & capital budgeting process video. Cash flows in a typical project: initial outlay. Increase in net working capital (increase inventories, raw materials, ect: on-going cash flows. Changes in net working capital (change in inventories, raw materials, accounts receivable and payable: terminal cash flows. Sale of equipment (net of any taxes) Decrease in net working capital (decrease inventories, raw materials, ect. ) (net working capital is current assets minus current liabilities) Calculating the npv of a project: to calculate npv of a project you must estimate. Set up the incremental cash flows: a good project for the firm has a positive or 0 npv, nopat = ebit(1-t) = (change in revenues change in operating. Costs change in depreciation)(1-t: incremental earnings, free cash flow taking out depreciation lowers our tax bill. Depreciation is a non cash expense so we add it back (change in revenues change in operating costs change in. Nopat + depreciation [{capital expenditures + increases.