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

Heat treatment., Why low carbon steel can not be quench hardened?

Why low carbon steel can not be quench hardened?

Techniques of capital budgeting, Techniques of capital budgeting There are ...

Techniques of capital budgeting There are a number of capital budgeting techniques used in the evaluation of a project. They are broadly classified under two categories: 1] Discoun

Controller requirements, Controller Requirements  The requirements for ...

Controller Requirements  The requirements for the stability and performance of fight control systems are specified in the certi-fication requirements for U.S. civilian aircraft

Financial Econometrics, In this assignment you are asked to demonstrate you...

In this assignment you are asked to demonstrate your understanding of both exploratory and statistical inference techniques described in class to investigate how the currency marke

Armature cipl, in which type of armature winding Equaliser ring dummy coils...

in which type of armature winding Equaliser ring dummy coils are used

Gating system design, A gating system is usually made up of :           ...

A gating system is usually made up of :                         (i) Pouring basin                                          (ii) Sprue well                         (iii) Ru

Flight control - estimators for control, Estimators for control: App...

Estimators for control: Applying control by the state itself needs transducers measuring each componentof x. If instead we apply control using the estimate of state (as prov

Explain the concept of postmodernism in detail, Question 1 Write a long no...

Question 1 Write a long note on Professional Cultures in a ‘Golden Age' Question 2 Write a long note on the Global and Local Interrelationship Question 3 Write a long no

Crude oil assy, what is the importance of cetane number in crude oil assy?

what is the importance of cetane number in crude oil assy?

Fluid mechanics, what is difference between lagrangian aparoach and euleria...

what is difference between lagrangian aparoach and eulerian approach?

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