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

Nash equilibrium, how to get ns2 coding for nash equilibrium

how to get ns2 coding for nash equilibrium

State vectors , State Vectors  In engineering - particularly control...

State Vectors  In engineering - particularly control engineering - most systems are represented by a state vector.  - The state vector contains all of the relevant qua

Blending or mixing, To achieve successful results in powder metallurgy the ...

To achieve successful results in powder metallurgy the metallic powder must be thoroughly homogenized. The term blending and mixing are both used in this content. Blending refers t

Balanced investment strategy, Balanced Investment Strategy Portfolio manage...

Balanced Investment Strategy Portfolio management strategy where all assets are owed with the aim of avoiding excessive risk by diversifying investment athwart different asset clas

Second order decoupling approximation, The second order (two degree of free...

The second order (two degree of freedom) Dutch-Roll approximation is an approximation to the above fourth order system for the Dutch Roll dynamics. A justification for this is to c

Explain the concept of error function, Question 1 Explain the concept of e...

Question 1 Explain the concept of error function Question 2 Obtain the Fourier transform for the following Single sided exponential signal Gate function Triangula

Fire risk assessment in usa - fire protection engineering, Fire risk assess...

Fire risk assessment in USA: The document NFPA 551:2010 is entitled Guide for the Evaluation of Fire Risk Assessments.   In this document is set out the American use of the

Aieee, aieee ka course karne ke liye kya karna padega

aieee ka course karne ke liye kya karna padega

HELP!!, HELP IN ELECTRONIC...I AM DOING ELECTRONIC ENG. ... GUIDE ME THE WA...

HELP IN ELECTRONIC...I AM DOING ELECTRONIC ENG. ... GUIDE ME THE WAY...

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