Chapter 7 Net Present value andr Capital Budgeting Beginning of year End of year Change Accounts receivable S880 s910 +S30 Accounts payable 550 605 +55 Net working capital 330 305 -25 Total cash flow=$215 190-(-25) Now we could ask a question: what were cash flow revenues for the year? Also what were cash costs? Sales are 500, but accounting receivable rose by 30 over the year, so our cash flows is only 500-30=470
Chapter 7 Net Present Value and Capital Budgeting Beginning of year End of year Change Accounts receivable $880 $910 +$30 Accounts payable 550 605 +55 Net working capital 330 305 -25 Total cash flow = $215[190-(-25)] Now we could ask a question: what were cash flow revenues for the year? Also what were cash costs? Sales are 500,but accounting receivable rose by 30 over the year ,so our cash flows is only 500-30=470
Chapter Net Present Value and Capital Budgeting Cash flows out can be similarly determined. cost is 310, but accounts payable increased by 55, this means that we have not yet paid 55of the 310, so cash costs for the period are just 310-55=255. Putting this information together, cash inflows less cash outflows is 470-255-=215,just we had before. Now we could notice that: Cash flow =cash inflow-cash outflow=operating cash flow -change in net working capital
Chapter 7 Net Present Value and Capital Budgeting Cash flows out can be similarly determined .cost is 310, but accounts payable increased by 55, this means that we have not yet paid 55of the 310, so cash costs for the period are just 310-55=255. Putting this information together, cash inflows less cash outflows is 470-255=215,just we had before. Now we could notice that: Cash flow =cash inflow- cash outflow=operating cash flow –change in net working capital
Chapter Net Present Value and Capital Budgeting Example for cash collections and costs For the year just completed, corporation CWT reports sales of 998 and costs of 734. You have collected the following beginning and ending balance sheet information: Beginning Ending Accounts receivable l00 10 Inventory l00 80 Accounts payable l00 70 Net working Capital l00 120
Chapter 7 Net Present Value and Capital Budgeting Example for cash collections and costs For the year just completed, corporation CWT reports sales of 998 and costs of 734. You have collected the following beginning and ending balance sheet information: Beginning Ending Accounts receivable 100 110 Inventory 100 80 Accounts payable 100 70 Net Working Capital 100 120
Chapter. Z Net Present value and Capital Budgeting Cash inflows 998-10=988 Cash outflows 734-20+30=744 Net cash flows 988-744=244 Cash flows (998-734)-(120-100)=244
Chapter 7 Net Present Value and Capital Budgeting • Cash inflows: 998-10=988 • Cash outflows 734-20+30=744 • Net cash flows 988-744=244 • Cash flows (998-734)-(120-100)=244
Chapter 7 Net Present value andr Capital Budgeting 7.4.2 Depreciation Accounting depreciation is a noncash deduction. As a result, depreciation has cash flow consequences only because it influences the tax bill Accelerated cost recovery system(ACRS) is a depreciation method under U.s. tax law allowing for the accelerated write-off of property under various classifications Modified acrs depreciation Calculating depreciation is normally very mechanical Once an asset's tax life is determined the depreciation for each year is computed by
Chapter 7 Net Present Value and Capital Budgeting 7.4.2 Depreciation Accounting depreciation is a noncash deduction. As a result, depreciation has cash flow consequences only because it influences the tax bill. • Accelerated cost recovery system(ACRS) is a depreciation method under U.S. tax law allowing for the accelerated write-off of property under various classifications. • Modified ACRS depreciation Calculating depreciation is normally very mechanical. Once an asset’s tax life is determined the depreciation for each year is computed by