Chapter Net Present Value and Capital Budgeting Projected capital requirements of special project Year 0 $20000200002000020000 working capital Net fixed 900006000030000 0 assets 110000800005000020000 Investment
Chapter 7 Net Present Value and Capital Budgeting Projected capital requirements of special project Year 0 1 2 3 Net working capital $20000 20000 20000 20000 Net fixed assets 90000 60000 30000 0 Total investment 110000 80000 50000 20000
Chapter Net Present Value and Capital Budgeting 7.3.2 Project cash flows Project cash flow=project operating cash flow -project additions to net working capital- project capital spendin Project Operating Cash Flow(51780) Operating cash flow= EBIT+ Depreciation- Taxes Projected Net Working Capital and Capital Spending
Chapter 7 Net Present Value and Capital Budgeting 7.3.2 Project cash flows Project cash flow =project operating cash flow –project additions to net working capital – project capital spending Project Operating Cash Flow (51780) Operating cash flow = EBIT+ Depreciation – Taxes Projected Net Working Capital and Capital Spending
Chapter Net Present Value and Capital Budgeting Project total cash flows Year 0 2 Operating cash 51780 51780 51780 flows Addition to 20000 20000 NWC spite 90000 spending Total cash I10000 5178051780 71780 flows
Chapter 7 Net Present Value and Capital Budgeting Project total cash flows Year 0 1 2 3 Operating cash flows 51780 51780 51780 Addition to NWC -20000 20000 Capital spending -90000 Total cash flows -110000 51780 51780 71780
Chapter Net Present Value and Capital Budgeting 7.3.3 Projected total cash flow and value NPV=project cash flows(P/F,i, n) NPV=10648 The return of this project will exceeds 20% because the Npv which computed with 20% is over $1000. The project not only could be acceptable, but also exceed which we want. If we could calculated. we would find that the irr will near 26%0
Chapter 7 Net Present Value and Capital Budgeting 7.3.3 Projected total cash flow and value NPV=project cash flows (P/F, i, n) NPV=10648 The return of this project will exceeds 20% because the NPV which computed with 20% is over $1000. The project not only could be acceptable, but also exceed which we want. If we could calculated, we would find that the IRR will near 26%
Chapter 7 Net Present value andr Capital Budgeting 7.4 More on project cash flow 7. 4. 1 A closer look at net working capital In this section we will ignore the no depreciation, no taxes no fixed assets investments sales s500 Costs 310 Net income $190 Depreciation and taxes are zero. No fixed assets are purchased during the year. So we will only talk about the NWC(accounting receivable and payable)
Chapter 7 Net Present Value and Capital Budgeting 7.4 More on project cash flow 7.4.1 A closer look at net working capital In this section we will ignore the no depreciation, no taxes, no fixed assets investments. Sales $500 Costs 310 Net income $190 Depreciation and taxes are zero. No fixed assets are purchased during the year. So we will only talk about the NWC (accounting receivable and payable)