Cash Flows Components, Finance, Other Engineering

Assignment Help:
A typical investment will have three components of cash flows:

• Initial investment

• Annual net cash flows

• Terminal cash flows.

Initial investment

Initial investment is the net cash outlay in the period in which as asset is purchased. A major element of the initial investment is gross outplay or original value (ov) of the asset, which comprises of its cost (including accessories and spare parts) and freight and installation charges. Original value is included in the existing block of assets for computing annual depreciation.

Net cash flows

An investment is expected to generate annual cash flows from operations after the initial cash outlay has been made. Cash flows should always be estimated on an after-tax basis. Some people advocate computing of cash flows before taxes and discounting them at the before-tax discount rate to fine NPV.

Depreciation and taxes

The computation of the after-tax cash flows requires a careful treatment of non-cash expense items such as depreciation. Depreciation is an allocation of cost of asset. It involves an accounting entry and does not require any cash outflow; the cash outflow occurs when the assets are acquired.

Depreciation, calculated as per the income tax rules, is a deductible expense for computing taxes. In itself, it has no direct impact on cash flows, but it indirectly influences cash flow since it reduces the firm’s tax liability. Cash outflow for taxes saved is in fact an inflow of cash. The saving resulting from deprecation is called depreciation tax shield.

Related Discussions:- Cash Flows Components, Finance

Mass Transfer, construction and working of counter flow tray

construction and working of counter flow tray

Flame photometer, please explain a bout blog diagram of flame photometer

please explain a bout blog diagram of flame photometer

Corporate debt market, identify the types of borrowers who have access to f...

identify the types of borrowers who have access to funds through the issue of debentures

Flight control - linear system, Representations of a linear system The ...

Representations of a linear system The linear system of Section is shown in block diagram To determine the responseof the output of the system y(t) to an input u(t) the initial

Industrial buildings inspections-fire protection engineering, Industrial Bu...

Industrial Buildings Inspections: Fire safety within industrial buildings falls largely within the scope of more general precautions and recommendations given in Chapter of NF

Biotechnology engineering project, I want a project which is related to bio...

I want a project which is related to biotech engineering.. Something like designing or inventing .

Civil construction, what a problem when we do a construction project

what a problem when we do a construction project

Clipper and clamper, i want 5 question for clipper and clamper along with t...

i want 5 question for clipper and clamper along with their solution

Software design principles, explain the design should be traceable to the a...

explain the design should be traceable to the analysis model

Decision table software engineering, Write a decision table that specifies ...

Write a decision table that specifies the rules for the game of checkers.

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd