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

A/c question 1, Briefly describe a simple method of estimating summer outsi...

Briefly describe a simple method of estimating summer outside air conditions for the design calculations of an air conditioning scheme. If a more accurate assessment of heat gains

Petroleum Production.., 1. . Using the graph of pore/fracture pressure for ...

1. . Using the graph of pore/fracture pressure for the Holly Field propose a casing scheme for the well using the graphical approach. Discuss the suitability of the selected casing

Measurement uncertainty, Real measurements never deliver the true value of ...

Real measurements never deliver the true value of the physical quantity or measurand. The measurement uncertainty consists of a random error and a systematic error. Most of the err

Allowances for pattern, Allowances for pattern : A pattern is always made ...

Allowances for pattern : A pattern is always made larger than the required size of the casting in order to allow for various factor, such as shrinkage, machining, distortion and r

Grain growth, Q. Explain the grain growth. Ans. Grain growth: After R...

Q. Explain the grain growth. Ans. Grain growth: After Recrystallization is complete, the strain free grains will continue to grow if the metal specimen is left at elevated te

Vibration analysis of aircraft, Vibration Analysis Gas turbine engines ...

Vibration Analysis Gas turbine engines have extremely low levels of vibration compared to piston engines. Changes in vibration levels could occur therefore without being notic

Drilling assignment, I need help in doing a project in excel that has ever...

I need help in doing a project in excel that has everything about drilling like mud pump etc ..

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