Explain four problematic situations that will make determining incremental cash flows difficult.
Explain four problematic situations that will make determining incremental cash flows difficult.
Homework Answers
The following are very difficult to determine
1. Sunk Cost: How to determine whether the cost is a sunk cost or the project itself started that time
2. Opportunity Cost: A land purchased few years ago can be rented or sold
3. Cannibalization or Complimentarity: The project eating into or benefiting other projects
4. Allocated Costs or Overheads: In case of shared resources how to allocate costs
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Explain four problematic situations that will make determining incremental cash flows difficult.
Problem 08.014 - Calculating incremental cash flows For the cash flows shown, determine the incremental cash...
Problem 08.014 - Calculating incremental cash flows For the cash flows shown, determine the incremental cash flow between machines B and A (a) in year o. (b) in year 3, and (c) in year 6. Machine First Cost, $ AOC, $ per Year Salvage Value, $ Life, Years 18,000 1,600 5,000 3 -25,000 -400 6,000 6 a) The incremental cash flow between machines B and A in year O is $ b) The incremental cash flow between machines B and...
In determining the cash flows from operating activities for the statement of cash flows by the...
In determining the cash flows from operating activities for the statement of cash flows by the indirect method, the depreciation expense for the period is added to the net income for the period.
Elmdale Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult...
Elmdale Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult to estimate, management has projected the following cash flows for the first two years (in millions of dollars): Year 1 118.1 46.9 28.7 Revenues COGS and Operating expenses (other than depreciation) Depreciation Increase in working capital Capital expenditures Corporate tax rate Year 2 156.8 50.9 38.2 8.7 40.8 20% 3.7 28.3 20% a. What are the incremental earnings for this project for years 1...
deciding whether to expand its production facilities. Although long-term cash flows are difficult to estimate, management...
deciding whether to expand its production facilities. Although long-term cash flows are difficult to estimate, management has projected the following cash flows for the first two years (in millions of Elmdale Enterprises dollars) Year 1 Year 2 160.7 64.7 Revenues 111.8 COGS and Operating expenses (other than depreciation) Depreciation Increase in working capital Capital expenditures Corporate tax rate 43.7 28.3 33.3 5.1 8.5 34.1 44.2 20 % 20% a. What are the incremental eamings for this project for years 1...
7. Which of the following cash flows are relevant incremental cash flows for a project that...
7. Which of the following cash flows are relevant incremental cash flows for a project that you are currently considering investing in? A. Research and Development expenditures you have made B. The cost of a marketing survey you conducted to determine demand for the proposed project C. Interest payments on debt used to finance the project D. The tax savings brought about by the project's depreciation expense
For the cash flows shown, determine the incremental cash flow between machines B and A (a)...
For the cash flows shown, determine the incremental cash flow between machines B and A (a) in year 0, (b) in year 3, and (c) in year 6. Machine A B First Cost, $ -11,000 –25,000 AOC, $ per Year -1,400 –400 Salvage Value, $ 3,000 6,000 Life, Years 3 6 a) The incremental cash flow between machines B and A in year 0 is $ .___ b) The incremental cash flow between machines B and A in year...
Elmdale Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult...
Elmdale Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult to estimate, management has projected the following cash flows for the first two years (in millions of dollars): Yoar 2 D 152.1 Revenues COGS and Operating Expenses (other than depreciation) Depreciation Increase in Net Working Capital Capital Expenditures Marginal Corporate Tax Rate Year 1 128.4 40.8 20.7 2.7 25.8 35% 55.9 25.3 8.8 39.6 35% a. What are the incremental earnings for this project...
When firms make capital budgeting decisions, they should concern themselves with incremental cash flows, not net...
When firms make capital budgeting decisions, they should concern themselves with incremental cash flows, not net income, when evaluating projects. To determine the incremental cash flows associated with a capital project, an analyst should include all of the following except: The project's financing costs The project's depreciation expense Changes in net working capital associated with the project The project's fixed-asset expenditures O Indirect cash flows often affect a firm's capital budgeting decisions. However, some of these indirect cash flows are...
3. Identifying incremental cash flows Aa Aa E When firms make capital budgeting decisions, they should...
3. Identifying incremental cash flows Aa Aa E When firms make capital budgeting decisions, they should concern themselves with incremental cash flows, not net income, when evaluating projects. To determine the incremental cash flows associated with a capital project, an analyst should include all of the following except: The project's fixed-asset expenditures Changes in net working capital associated with the project The project's depreciation expense The project's financing costs Indirect cash flows often affect a firm's capital budgeting decisions. However,...
Elmdale Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult...
Elmdale Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult to estimate, management has projected the following cash flows for the first two years (in millions of dollars): Year 1 Year 2 Revenues 112.3112.3 153.8153.8 COGS and Operating expenses (other than depreciation) 49.649.6 55.555.5 Depreciation 29.729.7 37.437.4 Increase in working capital 5.45.4 8.38.3 Capital expenditures 28.328.3 40.240.2 Corporate tax rate 20 %20% 20 %20% a. What are the incremental earnings for this project...
Problem 08.014 - Calculating incremental cash flows For the cash flows shown, determine the incremental cash flow between machines B and A (a) in year o. (b) in year 3, and (c) in year 6. Machine First Cost, $ AOC, $ per Year Salvage Value, $ Life, Years 18,000 1,600 5,000 3 -25,000 -400 6,000 6 a) The incremental cash flow between machines B and A in year O is $ b) The incremental cash flow between machines B and...
Elmdale Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult to estimate, management has projected the following cash flows for the first two years (in millions of dollars): Year 1 118.1 46.9 28.7 Revenues COGS and Operating expenses (other than depreciation) Depreciation Increase in working capital Capital expenditures Corporate tax rate Year 2 156.8 50.9 38.2 8.7 40.8 20% 3.7 28.3 20% a. What are the incremental earnings for this project for years 1...
deciding whether to expand its production facilities. Although long-term cash flows are difficult to estimate, management has projected the following cash flows for the first two years (in millions of Elmdale Enterprises dollars) Year 1 Year 2 160.7 64.7 Revenues 111.8 COGS and Operating expenses (other than depreciation) Depreciation Increase in working capital Capital expenditures Corporate tax rate 43.7 28.3 33.3 5.1 8.5 34.1 44.2 20 % 20% a. What are the incremental eamings for this project for years 1...
Elmdale Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult to estimate, management has projected the following cash flows for the first two years (in millions of dollars): Yoar 2 D 152.1 Revenues COGS and Operating Expenses (other than depreciation) Depreciation Increase in Net Working Capital Capital Expenditures Marginal Corporate Tax Rate Year 1 128.4 40.8 20.7 2.7 25.8 35% 55.9 25.3 8.8 39.6 35% a. What are the incremental earnings for this project...
When firms make capital budgeting decisions, they should concern themselves with incremental cash flows, not net income, when evaluating projects. To determine the incremental cash flows associated with a capital project, an analyst should include all of the following except: The project's financing costs The project's depreciation expense Changes in net working capital associated with the project The project's fixed-asset expenditures O Indirect cash flows often affect a firm's capital budgeting decisions. However, some of these indirect cash flows are...
3. Identifying incremental cash flows Aa Aa E When firms make capital budgeting decisions, they should concern themselves with incremental cash flows, not net income, when evaluating projects. To determine the incremental cash flows associated with a capital project, an analyst should include all of the following except: The project's fixed-asset expenditures Changes in net working capital associated with the project The project's depreciation expense The project's financing costs Indirect cash flows often affect a firm's capital budgeting decisions. However,...
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