INCREMENTAL CASH FLOW CONCEPT AND CALCULATION

1. PRESENT BY
PRAKRUTHI Y
1st M.COM
INCREMENTAL CASH FLOW
CONCEPT AND CALCULATION
Under the guidance of
Sundar B. N.
Asst. Prof. & Course Co-ordinator
GFGCW, PG Studies in Commerce
Holenarasipura

2. CONTENT
1. WHAT IS INCREMENTAL CASH FLOW
2. CHALLENGES IN DETIRMINING INCREMENTAL CASH
FLOW
3. USES OF INCREMENTAL CASH FLOW
4. CALCULATION OF INCREMENTAL CASH FLOW
5. CONCLUSION
6. REFERENCE

3. Incremental cash flow is the additional operating cash
flow that an organization receives from taking on a
new project.
A positive incremental cash flow means that the
company cash flow will increase with the acceptence of
the project.
WHAT IS INCREMENTAL CASH FLOW ?

4.  SUNK COSTS :
Sunk costs are already occurred and has no potential
for recovery in the future.
 OPPORTUNTY COST :
Opportunity costs represent the potential benefits an individual
investor , or business misses out on when choosing one
alternative over another.
 CANNIBALIZATION :
Cannibalization is when a company has several products that
compete with one another with in same market.
CHALLENGES IN DETERMINING INCREMENTAL
CASH FLOW

5. USAGE OF
INCREMENTAL
CASH FLOW
PAY BACK
PERIOD
ACCOUNTING
RATE OF
RETURN
NET PRESENT
VALUE
PROFITABILITY
INDEX
INTERNAL RATE
OF RETURN
USES OF INCREMENTAL CASH FLOW

6. Average (in thousands) for years:
CALCULATION OF INCREMENTAL
CASH FLOW
1-5 6-10 11-15 16-20 21-∞
Incremental
EBITDA
$3500 $4000 $4400 $4700 $5000
Minus:
Taxes 500 7oo 800 900 1000
Capital
expenditures
1500 1600 1750 1850 1950
Working
capital
additions
200 250 290 320 350
Incremental
cash flow
$1300 $1450 $1560 $1630 $1700

7. ABC company is considering investing in new
machinery which costs $ 500000.
It has useful life of 5 years with a scrap value of $ 50000.
Base on the projection , the company will be able to
increase the sale of $ 1 million per year with 40% of variable
cost.
what is the incremental cash flow of this project ?
PROBLEM ON INCREMENTAL CASH FLOW

8. The cash in flow over the project is $
5000000
( 1000000* 5 years )
The cash outflow over the project is $
2000000
( 40% of the sale is variable cost )
ICF = $ 5000000- 2000000-500000=
2500000
SOLUTION

9. Incremental cash flow is an important
tool for ranking or deciding between two
competing and mutually exclusive projects
The positive net cash flow for the new
project is calculated and added to the
company ‘s existing cash flow.
CONCLUSION

10. 1 .What is incremental cash ( retrieved from http://www.Investopedia.Com)
date : 19 /04/2021
2 .Challenges in determining incremental cash flow (retrieved from
http://corporatefinanceinstitute.com) date : 20 /04/2021
3 . uses of incremental cash flow (retrieved from http://efinancemenagement.Com)
date: 20/ 04/2021
4. Calculation of incremental cash flow (retrieved from financial management and policy
James C. Van Horne page no -153) date : 23 / 04 / 2021
5. Problem on incremental cash fl0w ( retrieved from http://accountinguide.com)
date : 20 / 04 / 2021
5. Conclusion ( retrieved from http://businessyield.com) date : 20/04/2021