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

INTERNATIONAL TRADE, AS A CONSULTANT YOU ARE REQUIRED TO HIGHLIGHT THE BASI...

AS A CONSULTANT YOU ARE REQUIRED TO HIGHLIGHT THE BASIS OF INTERNATIONAL AND SHOW WHY YOU WOULD RECOMMEND INTERNATIONAL TRADE TO THE GOVERNMENT OF GHANA

#title urban and regional planning.., name and elaborate the decision probl...

name and elaborate the decision problems in urban and regional planning?

#pareto, how to crate pareto charts eith matlab?

how to crate pareto charts eith matlab?

Linear lateral dynamics, Linear lateral dynamics The second order (two ...

Linear lateral dynamics The second order (two degree of freedom) Dutch-Roll approximation is an approximation to the abovefourth order system for the Dutch Roll dynamics. A jus

Foreign exchange market and exchange rates, what is the equation relating t...

what is the equation relating the real exchange rate to the nominal exchange rate and domestic and foreign price levels

Propeller balance, PROPELLER BALANCE There are two types of balance of ...

PROPELLER BALANCE There are two types of balance of importance when working with propellers: • Static Balance • Dynamic Balance Static balance is checked and corrected

Linear programing, Description of the Diet Problem The goal of the diet pro...

Description of the Diet Problem The goal of the diet problem is to find an ”optimal” combination of foods that will satisfy all the daily nutritional requirements of an individual.

1 year engg, state and explain varignons theorem

state and explain varignons theorem

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