《财务管理基础 沈洪涛》ch11.pptVIP

CHAPTER 11Cash Flow Estimation and Risk Analysis Relevant cash flows Incorporating inflation Types of risk Risk Analysis Proposed Project Total depreciable cost Equipment: $200,000 Shipping: $10,000 Installation: $30,000 Changes in working capital Inventories will rise by $25,000 Accounts payable will rise by $5,000 Effect on operations New sales: 100,000 units/year @ $2/unit Variable cost: 60% of sales Proposed Project Life of the project Economic life: 4 years Depreciable life: MACRS 3-year class Salvage value: $25,000 Tax rate: 40% WACC: 10% Determining project value Estimate relevant cash flows Calculating annual operating cash flows. Identifying changes in working capital. Calculating terminal cash flows. Initial year net cash flow Find Δ NOWC. ? in inventories of $25,000 Funded partly by an ? in A/P of $5,000 Δ NOWC = $25,000 - $5,000 = $20,000 Combine Δ NOWC with initial costs. Equipment -$200,000 Installation -40,000 Δ NOWC -20,000 Net CF0 -$260,000 Determining annual depreciation expense Year Rate x Basis Depr 1 0.33 x $240 $ 79 2 0.45 x 240 108 3 0.15 x 240 36 4 0.07 x 240 17 1.00 $240 Due to the MACRS ?-year convention, a 3-year asset is depreciated over 4 years. Annual operating cash flows 1 2 3 4 Revenues 200 200 200 200 - Op. Costs (60%) -120 -120 -120 -120 - Deprn Expense -79 -108 -36 -17 Oper. Income (BT) 1 -28 44 63 - Tax (40%) - -11 18 25 Oper. Income (AT) 1 -17 26 38 + Deprn Expense 79 108 36 17 Operating CF 80 91 62 55 Terminal net cash flow Recovery of NOWC $20,000 Salvage value 25,000 Tax on SV (40%) -10,000 Terminal CF $35,000 Q. How is NOWC recovered? Q. Is there always a tax on SV? Q. Is the tax on SV ever a positive cash flow? Should financing effects be included in cash flows? No, dividends and interest expense should not be included in the analysis. Fi