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

Direct from engine compressor, Direct from engine compressor: A Load va...

Direct from engine compressor: A Load valve is switched on from the flightdeck, power for the switch is available once the APU has achieved 95% + 3 sec. This energises the swit

Engineering physics 1, scaning electro microscope,transmission microscope

scaning electro microscope,transmission microscope

Environemental, How to Compute the carbon per mile for the car

How to Compute the carbon per mile for the car

Variable magnetic coupling transducers, Variable magnetic coupling transduc...

Variable magnetic coupling transducers A transducer of this type relies on variable coupling between magnetic coils. An example is a Linear Variable Differential Transformer (L

Engineering Risk and Reliability , The demand placed on a system is describ...

The demand placed on a system is described by a lognormally distributed random variable with mean 50 and standard deviation of 10. The capacity of the system is modeled by a Weibul

Interest rate calculations, Interest Rate Calculations In considering ...

Interest Rate Calculations In considering the time value of money, it is convenient to represent mathematically the relationship between the current or present value of a sing

Flight dynamics, Flight dynmaics The study of aircraft- Stability & Tri...

Flight dynmaics The study of aircraft- Stability & Trim (Equilibrium)- Motion due to • Control inputs • Atmospheric Disturbances • We will consider for the most part f

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