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

Difference between income & expenditure statement, Difference between incom...

Difference between income & expenditure statement P&L is to be ready by the Company or Dealing Origination which evolved in Dealing of any commodity or manufacturing of completed e

Absolute return fund, What is Absolute Return Fund The absolute return stra...

What is Absolute Return Fund The absolute return strategies develop returns from active management with small or no underlying market exposure, seeking to achieve positive returns

sweep effects, In the previous discussion, we investigated the static aero...

In the previous discussion, we investigated the static aeroelastic behaviour of straight (unswept) wings. These wings are characterised by an effective decoupling of wing bending a

Project, list 10 major project topic in agricultural engineering

list 10 major project topic in agricultural engineering

Reaction engines - aircraft maintance, These can be divided into several ca...

These can be divided into several categories. Turbojet engines. The turbojet was the first type of jet engine developed. In this engine all the air passes through the core engin

Cold shunt and misrun casting, Q. Discuss briefly the causes and remedies o...

Q. Discuss briefly the causes and remedies of misrun and cold shunts casting    Cold Shunt and Misrun : When the metal is unable to fill the     mould cavity completely and t

Laptop, How laptop making main function plz established??

How laptop making main function plz established??

WAVE ANALYZERS, TELL ME THE WORKING OF BASIC WAVE ANALYZER WITH DIAGRAM

TELL ME THE WORKING OF BASIC WAVE ANALYZER WITH DIAGRAM

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