Step 1: Evaluate Cash Flows a)Initial Outlay: What is the cash flow at “time0?” (127,000 +(20,000 (147,000 ++ (4,000) 0 Net Initial outlay
Step 1: Evaluate Cash Flows • a) Initial Outlay: What is the cash flow at “time 0?” (127,000) + ( 20,000) (147,000) + ( 4,000) + 0 Net Initial Outlay
Step 1: Evaluate Cash Flows a)Initial Outlay: What is the cash flow at “time0?” (127,000) Purchase price of asset +(20.000) shipping and installation (147,000) depreciable asset +(4,000)net working capital o proceeds from sale of old asset S151, 000) net initial outlay
Step 1: Evaluate Cash Flows • a) Initial Outlay: What is the cash flow at “time 0?” (127,000) Purchase price of asset + ( 20,000) shipping and installation (147,000) depreciable asset + ( 4,000) net working capital + 0 proceeds from sale of old asset ($151,000) net initial outlay
Step 1: Evaluate Cash Flows a)Initial Outlay: What is the cash flow at “time0?” (127,000) Purchase price of asset +(201000)shipping and installati (147,000)depreciable al + 4,000)net working o proceeds fry (S151,000 net initial out
Step 1: Evaluate Cash Flows • a) Initial Outlay: What is the cash flow at “time 0?” (127,000) Purchase price of asset + ( 20,000) shipping and installation (147,000) depreciable asset + ( 4,000) net working capital + 0 proceeds from sale of old asset ($151,000) net initial outlay
Step 1: Evaluate Cash Flows b) Annual Cash Flows: What incremental cash flows occur over the life of the proiect?
Step 1: Evaluate Cash Flows • b) Annual Cash Flows: What incremental cash flows occur over the life of the project?
For Each Year, Calculate: Incremental revenue Incremental costs Depreciation on project Incremental earnings before taxes Tax on incremental EBt Incremental earnings after taxes Depreciation reversal Annual cash flow
Incremental revenue - Incremental costs - Depreciation on project Incremental earnings before taxes - Tax on incremental EBT Incremental earnings after taxes + Depreciation reversal Annual Cash Flow For Each Year, Calculate: