The document discusses principles for estimating cash flows for projects. It outlines four key principles: the incremental principle, separation principle, post-tax principle, and consistency principle. The incremental principle states that cash flows should be measured based on the difference between cash flows with and without the project. Elements of the cash flow stream for projects include initial investment, operating cash flows, and terminal cash flows. Factors like incidental effects, sunk costs, opportunity costs, and working capital must be properly considered when estimating project cash flows.
The document discusses key concepts for estimating and analyzing project cash flows including: the elements of a cash flow stream; principles for cash flow estimation such as separation, incremental, post-tax, and consistency; perspectives to view cash flows from; and biases that can impact cash flow forecasting. Accurately estimating cash flows is important but difficult, and requires coordinating across departments while following principles and addressing inherent biases to produce reliable forecasts.
Financial risk management ppt @ mba financeBabasab Patil
This document provides an overview of financial risk management. It discusses key concepts such as risk, risk stratification, risk management approaches, interest rate risk, and term structure theories. The key points are:
1. Financial risk management involves monitoring risks and managing their impact on a firm. It uses modern finance theories to balance risk taken with expected reward.
2. Risk can be stratified into known probabilities, known parameters but uncertain quantification, unknown causation/interactions, and undiscovered or unmanifested risks.
3. A risk management approach involves identifying, measuring, and adjusting risks through behavior changes, insurance, hedging, and other means. Managing core business risks internally and hedging economic risks
This document discusses cash flow projections and principles for estimating cash flows. It contains the following key points:
- Cash flow projection involves estimating the amounts of cash that will be received and spent by a business over a period of time, often related to a specific project.
- There are four basic principles for estimating cash flows: incremental principle, separation principle, post-tax principle, and consistency principle.
- A cash flow stream for a project has three components: initial investment, operating cash inflows during the project lifetime, and terminal cash inflow from liquidating the project at the end.
This document outlines the process of generating and screening project ideas. It discusses monitoring the external environment, evaluating corporate strengths and weaknesses, and using tools like Porter's five forces model to identify investment opportunities. Potential project ideas are scouted from various sources and given a preliminary screening based on factors like market potential and costs. Projects are then rated using an index calculated from weighted factors to determine which ideas warrant further evaluation. The sources of positive net present value that make projects profitable are also discussed.
This document provides an overview of project financing, including what it is, the key parties and stages involved, and its advantages and disadvantages. Project financing refers to financing long-term infrastructure or industrial projects based on the future cash flows generated by the project rather than the balance sheets of its sponsors. The stages discussed include project identification, risk assessment, feasibility analysis, equity and debt arrangement, documentation, disbursement, monitoring, and closure. Advantages include off-balance sheet treatment for sponsors, while disadvantages include higher costs and complexity.
Project appraisal is the evaluation of a project's ability to succeed after a feasibility study. It examines key aspects like technical requirements, economic and financial impacts, the market, management, and environmental issues. The appraisal answers whether the project will meet objectives and how it compares to other options. Technical analysis evaluates raw materials, power, and transportation. Economic appraisal considers benefits to the overall economy. Market appraisal assesses demand, revenue, competition and customer satisfaction. Environmental appraisal identifies impacts and restoration measures. Financial appraisal focuses on costs, financing, profitability, and investment worth.
Social Cost Benefit Analysis: Concept of social cost benefit, significance of SCBA, Approach to SCBA,
UNIDO approach to SCBA, Shadow pricing of resource, the little miracle approach,
Project Implementation: Schedule of project implementation, Project Planning, Project Control, Human
aspects of project management, team building, high performance team.
The document discusses key concepts for estimating and analyzing project cash flows including: the elements of a cash flow stream; principles for cash flow estimation such as separation, incremental, post-tax, and consistency; perspectives to view cash flows from; and biases that can impact cash flow forecasting. Accurately estimating cash flows is important but difficult, and requires coordinating across departments while following principles and addressing inherent biases to produce reliable forecasts.
Financial risk management ppt @ mba financeBabasab Patil
This document provides an overview of financial risk management. It discusses key concepts such as risk, risk stratification, risk management approaches, interest rate risk, and term structure theories. The key points are:
1. Financial risk management involves monitoring risks and managing their impact on a firm. It uses modern finance theories to balance risk taken with expected reward.
2. Risk can be stratified into known probabilities, known parameters but uncertain quantification, unknown causation/interactions, and undiscovered or unmanifested risks.
3. A risk management approach involves identifying, measuring, and adjusting risks through behavior changes, insurance, hedging, and other means. Managing core business risks internally and hedging economic risks
This document discusses cash flow projections and principles for estimating cash flows. It contains the following key points:
- Cash flow projection involves estimating the amounts of cash that will be received and spent by a business over a period of time, often related to a specific project.
- There are four basic principles for estimating cash flows: incremental principle, separation principle, post-tax principle, and consistency principle.
- A cash flow stream for a project has three components: initial investment, operating cash inflows during the project lifetime, and terminal cash inflow from liquidating the project at the end.
This document outlines the process of generating and screening project ideas. It discusses monitoring the external environment, evaluating corporate strengths and weaknesses, and using tools like Porter's five forces model to identify investment opportunities. Potential project ideas are scouted from various sources and given a preliminary screening based on factors like market potential and costs. Projects are then rated using an index calculated from weighted factors to determine which ideas warrant further evaluation. The sources of positive net present value that make projects profitable are also discussed.
This document provides an overview of project financing, including what it is, the key parties and stages involved, and its advantages and disadvantages. Project financing refers to financing long-term infrastructure or industrial projects based on the future cash flows generated by the project rather than the balance sheets of its sponsors. The stages discussed include project identification, risk assessment, feasibility analysis, equity and debt arrangement, documentation, disbursement, monitoring, and closure. Advantages include off-balance sheet treatment for sponsors, while disadvantages include higher costs and complexity.
Project appraisal is the evaluation of a project's ability to succeed after a feasibility study. It examines key aspects like technical requirements, economic and financial impacts, the market, management, and environmental issues. The appraisal answers whether the project will meet objectives and how it compares to other options. Technical analysis evaluates raw materials, power, and transportation. Economic appraisal considers benefits to the overall economy. Market appraisal assesses demand, revenue, competition and customer satisfaction. Environmental appraisal identifies impacts and restoration measures. Financial appraisal focuses on costs, financing, profitability, and investment worth.
Social Cost Benefit Analysis: Concept of social cost benefit, significance of SCBA, Approach to SCBA,
UNIDO approach to SCBA, Shadow pricing of resource, the little miracle approach,
Project Implementation: Schedule of project implementation, Project Planning, Project Control, Human
aspects of project management, team building, high performance team.
Capital Budgeting is about how one should evaluate the financing options based on the superior financial performance through mathematical techniques. These techniques have been discussed in the presentation in detail.
Management Accounting - Capital investment decisionsGayan Mapitiya
This document discusses capital investment decisions and methods for evaluating potential capital projects. It describes how net present value (NPV), internal rate of return (IRR), payback period, accounting rate of return (ARR), and other techniques are used to analyze projects. NPV is preferred over other methods as it considers the time value of money. The document also covers capital rationing, mutually exclusive projects, qualitative factors, and weighted average cost of capital (WACC).
This document discusses project risk management. It defines risk as having possible outcomes that are understood, while uncertainty involves possible outcomes that are not understood. The key aspects of project risk management are risk identification, evaluation, response planning, monitoring and control. Project risk management aims to make projects more predictable and improve their chances of success through better planning and investment decisions.
Investment Decision — Capital Budgeting Techniques — Pay Back Method — Accounting Rate Of Return — NPV — IRR — Discounted Pay Back Method — Capital Rationing — Risk Adjusted Techniques Of Capital Budgeting. — Capital Budgeting Practices
Social Cost Benefit Analysis - SCBA - Seminar by Mohan Kumar GMohan Kumar G
This document provides an overview of social cost-benefit analysis (SCBA). It defines SCBA as a tool to evaluate projects based on their current and future social and economic impacts. The document outlines the key components of an SCBA, including identifying social costs and benefits, using shadow pricing to value hard-to-measure impacts, ranking projects, and distinguishing SCBA from traditional cost-benefit analysis. It also summarizes two common approaches to conducting SCBAs - the UNIDO and Little-Mirrlees approaches. The overall purpose of the document is to explain the objectives, methodology and importance of social cost-benefit analysis for project evaluation.
Network Techniques for Project ManagementIshan Gandhi
Undertaking a Project and Looking to manage the Time and Resources? This presentation provides a complete guide on how to manage the time and resources of a project.
Objectives of Network Analysis for Project Management:
1. To minimize idle resources.
2. To minimize the total project cost.
3. To trade-off between time and cost of the project.
4. To minimize production delays, interruptions and conflicts.
5. To minimize the total project duration.
1) Project finance sources funds for long-term infrastructure projects through a special purpose vehicle (SPV) formed by corporates and development authorities.
2) The SPV funds 30% of projects through equity and 70% through debt from several banks and financing institutions.
3) Key sources of project financing include external commercial borrowing, term loans, and assistance from institutions like commercial banks, IFCI, SFCs, UTI, and IIBI which provide medium to long-term financing for infrastructure projects.
Payback period (PP) is the number of years it takes for a company to recover its original investment in a project, when net cash flow equals zero. In the calculation of the payback period, the cash flows of the project must first be estimated. The payback period is then a simple calculation.
Discuss the concept of risk in investment decisions.
Understand some commonly used techniques, i.e., payback, certainty equivalent and risk-adjusted discount rate, of risk analysis in capital budgeting.
Focus on the need and mechanics of sensitivity analysis and scenario analysis.
Highlight the utility and methodology simulation analysis.
Explain the decision tree approach in sequential investment decisions.
Focus on the relationship between utility theory and capital budgeting decisions.
This document provides an introduction to key concepts in corporate finance including what corporate finance is, its relationship to financial accounting and management accounting, the concepts of risk and return and time value of money. It discusses corporate structure including sole proprietorships, partnerships and corporations. It describes the finance function and role of the financial manager in raising, allocating and returning funds. It also covers separation of ownership and management and issues of agency theory and corporate governance.
The document discusses housing finance. It describes the different types of housing finance like direct finance, supplementary finance, and indirect finance. It discusses the purpose, quantum, eligibility, and terms of housing loans. Housing loans are typically provided for purchasing or building a house. The loan amount usually ranges from Rs. 100,000 to Rs. 2 crores. Individuals over 18 with sufficient income are eligible, and loans are typically repaid over 15-25 years. Housing loans have a margin of 80-85% of the property cost and are secured by a mortgage on the property. Interest rates can be fixed or floating.
Capital budgeting is the process of evaluating long-term investment projects and determining whether they are worth funding through debt, equity, or retained earnings. It involves estimating future cash flows of potential projects, evaluating them using techniques like net present value, and choosing projects that increase shareholder value and have returns higher than the company's cost of capital. The objectives of capital budgeting include setting investment priorities, purchasing assets that generate positive returns, aligning investments with marketing plans, keeping pace with projected growth, and maintaining an optimal debt level.
This document discusses techniques for project appraisal. It outlines key issues to consider in appraising projects such as need, objectives, options, costs, benefits, risks and sustainability. It also describes various analyses used in appraisal, including technical, economic, financial, environmental and social analyses. The main techniques of economic analysis are cost-benefit analysis, cost-effectiveness analysis and multi-criteria analysis. Financial analysis determines funding requirements and expected returns. Common appraisal methods include undiscounted techniques like payback period as well as discounted techniques like net present value, internal rate of return and benefit-cost ratio.
Capital budgeting refers to the process of evaluating investment projects and determining whether they should be accepted or rejected. There are traditional and discounted cash flow methods for evaluating projects. Traditional methods include payback period and accounting rate of return, which do not consider the time value of money. Discounted cash flow methods like net present value (NPV) and internal rate of return (IRR) discount future cash flows to determine if a project will provide sufficient returns. The capital budgeting process involves project generation, evaluation using techniques like NPV or IRR, and selection of projects that meet acceptance criteria.
This document discusses the time value of money concept. It defines TVM as the idea that money available now is worth more than the same amount in the future due to its potential to earn interest. TVM is important for financial management as it allows comparison of investment alternatives and solving problems involving loans and savings. The document provides examples of how TVM is used to evaluate capital projects using methods like net present value and internal rate of return. It also explains techniques for calculating future and present value to adjust for the time value of money.
Project financing has become widely used in India for large capital intensive infrastructure projects. It involves borrowing funds for a project before construction is complete, with lenders looking primarily to the project's cash flows and assets for repayment rather than the sponsor's balance sheet. Key to project financing is allocating risks through long-term contracts between the project company, construction firms, fuel/offtake suppliers and operators. Project financing emerged in the 1970s for power projects and has since been used for various industries like mining, transportation and manufacturing.
1. The document discusses portfolio selection using the Markowitz model.
2. The Markowitz model aims to find the optimal portfolio, which provides the highest return and lowest risk. It does this by analyzing different combinations of securities to identify efficient portfolios.
3. The document provides details on the tools and steps used in the Markowitz model for portfolio selection, including analyzing expected returns, variance, standard deviation, and coefficients of correlation between securities.
Financial management involves planning and controlling a company's finances to achieve its objectives. It is concerned with raising financial resources and using them effectively. The scope of financial management includes anticipating financial needs, acquiring funds from various sources, allocating funds to purchase assets, appropriating profits, and assessing all financial activities. Capital budgeting is the process of evaluating long-term investments and determining which investments are worth pursuing. There are various techniques used in capital budgeting such as payback period, net present value, internal rate of return, and profitability index. Working capital management involves managing current assets like inventory, accounts receivable, and cash as well as current liabilities to ensure the company can continue operating and meet short-term obligations.
The document compares the Net Present Value (NPV) and Internal Rate of Return (IRR) methods of evaluating investment projects. While NPV and IRR usually lead to the same decisions for independent projects, they can provide conflicting rankings for mutually exclusive projects. The key differences are that NPV is expressed in absolute terms and considers variations in cash flow timing, while IRR is a percentage rate and does not follow the value additivity principle. The document recommends using NPV over IRR for mutually exclusive projects due to its more realistic assumptions and ability to directly measure profitability and impact on shareholder wealth.
The document discusses the estimation of cash flows for capital budgeting and expenditure decisions. It defines capital expenditures as long-term investments like purchasing assets that generate cash flows beyond one year. It also discusses the importance of accurately estimating cash flows, the difficulties involved, and the key principles and components to consider when estimating cash flows for capital projects.
Project cash flows refer to the incremental future cash inflows and outflows that result directly from a project. Only cash flows that change as a result of accepting or rejecting a project are considered relevant for project analysis. Relevant cash flows include incremental revenue, production costs, taxes, and initial outlays. Depreciation is not a cash flow. Project cash flows are identified and measured on a yearly basis in a cash flow table, which is then used to calculate the net present value of the project.
Capital Budgeting is about how one should evaluate the financing options based on the superior financial performance through mathematical techniques. These techniques have been discussed in the presentation in detail.
Management Accounting - Capital investment decisionsGayan Mapitiya
This document discusses capital investment decisions and methods for evaluating potential capital projects. It describes how net present value (NPV), internal rate of return (IRR), payback period, accounting rate of return (ARR), and other techniques are used to analyze projects. NPV is preferred over other methods as it considers the time value of money. The document also covers capital rationing, mutually exclusive projects, qualitative factors, and weighted average cost of capital (WACC).
This document discusses project risk management. It defines risk as having possible outcomes that are understood, while uncertainty involves possible outcomes that are not understood. The key aspects of project risk management are risk identification, evaluation, response planning, monitoring and control. Project risk management aims to make projects more predictable and improve their chances of success through better planning and investment decisions.
Investment Decision — Capital Budgeting Techniques — Pay Back Method — Accounting Rate Of Return — NPV — IRR — Discounted Pay Back Method — Capital Rationing — Risk Adjusted Techniques Of Capital Budgeting. — Capital Budgeting Practices
Social Cost Benefit Analysis - SCBA - Seminar by Mohan Kumar GMohan Kumar G
This document provides an overview of social cost-benefit analysis (SCBA). It defines SCBA as a tool to evaluate projects based on their current and future social and economic impacts. The document outlines the key components of an SCBA, including identifying social costs and benefits, using shadow pricing to value hard-to-measure impacts, ranking projects, and distinguishing SCBA from traditional cost-benefit analysis. It also summarizes two common approaches to conducting SCBAs - the UNIDO and Little-Mirrlees approaches. The overall purpose of the document is to explain the objectives, methodology and importance of social cost-benefit analysis for project evaluation.
Network Techniques for Project ManagementIshan Gandhi
Undertaking a Project and Looking to manage the Time and Resources? This presentation provides a complete guide on how to manage the time and resources of a project.
Objectives of Network Analysis for Project Management:
1. To minimize idle resources.
2. To minimize the total project cost.
3. To trade-off between time and cost of the project.
4. To minimize production delays, interruptions and conflicts.
5. To minimize the total project duration.
1) Project finance sources funds for long-term infrastructure projects through a special purpose vehicle (SPV) formed by corporates and development authorities.
2) The SPV funds 30% of projects through equity and 70% through debt from several banks and financing institutions.
3) Key sources of project financing include external commercial borrowing, term loans, and assistance from institutions like commercial banks, IFCI, SFCs, UTI, and IIBI which provide medium to long-term financing for infrastructure projects.
Payback period (PP) is the number of years it takes for a company to recover its original investment in a project, when net cash flow equals zero. In the calculation of the payback period, the cash flows of the project must first be estimated. The payback period is then a simple calculation.
Discuss the concept of risk in investment decisions.
Understand some commonly used techniques, i.e., payback, certainty equivalent and risk-adjusted discount rate, of risk analysis in capital budgeting.
Focus on the need and mechanics of sensitivity analysis and scenario analysis.
Highlight the utility and methodology simulation analysis.
Explain the decision tree approach in sequential investment decisions.
Focus on the relationship between utility theory and capital budgeting decisions.
This document provides an introduction to key concepts in corporate finance including what corporate finance is, its relationship to financial accounting and management accounting, the concepts of risk and return and time value of money. It discusses corporate structure including sole proprietorships, partnerships and corporations. It describes the finance function and role of the financial manager in raising, allocating and returning funds. It also covers separation of ownership and management and issues of agency theory and corporate governance.
The document discusses housing finance. It describes the different types of housing finance like direct finance, supplementary finance, and indirect finance. It discusses the purpose, quantum, eligibility, and terms of housing loans. Housing loans are typically provided for purchasing or building a house. The loan amount usually ranges from Rs. 100,000 to Rs. 2 crores. Individuals over 18 with sufficient income are eligible, and loans are typically repaid over 15-25 years. Housing loans have a margin of 80-85% of the property cost and are secured by a mortgage on the property. Interest rates can be fixed or floating.
Capital budgeting is the process of evaluating long-term investment projects and determining whether they are worth funding through debt, equity, or retained earnings. It involves estimating future cash flows of potential projects, evaluating them using techniques like net present value, and choosing projects that increase shareholder value and have returns higher than the company's cost of capital. The objectives of capital budgeting include setting investment priorities, purchasing assets that generate positive returns, aligning investments with marketing plans, keeping pace with projected growth, and maintaining an optimal debt level.
This document discusses techniques for project appraisal. It outlines key issues to consider in appraising projects such as need, objectives, options, costs, benefits, risks and sustainability. It also describes various analyses used in appraisal, including technical, economic, financial, environmental and social analyses. The main techniques of economic analysis are cost-benefit analysis, cost-effectiveness analysis and multi-criteria analysis. Financial analysis determines funding requirements and expected returns. Common appraisal methods include undiscounted techniques like payback period as well as discounted techniques like net present value, internal rate of return and benefit-cost ratio.
Capital budgeting refers to the process of evaluating investment projects and determining whether they should be accepted or rejected. There are traditional and discounted cash flow methods for evaluating projects. Traditional methods include payback period and accounting rate of return, which do not consider the time value of money. Discounted cash flow methods like net present value (NPV) and internal rate of return (IRR) discount future cash flows to determine if a project will provide sufficient returns. The capital budgeting process involves project generation, evaluation using techniques like NPV or IRR, and selection of projects that meet acceptance criteria.
This document discusses the time value of money concept. It defines TVM as the idea that money available now is worth more than the same amount in the future due to its potential to earn interest. TVM is important for financial management as it allows comparison of investment alternatives and solving problems involving loans and savings. The document provides examples of how TVM is used to evaluate capital projects using methods like net present value and internal rate of return. It also explains techniques for calculating future and present value to adjust for the time value of money.
Project financing has become widely used in India for large capital intensive infrastructure projects. It involves borrowing funds for a project before construction is complete, with lenders looking primarily to the project's cash flows and assets for repayment rather than the sponsor's balance sheet. Key to project financing is allocating risks through long-term contracts between the project company, construction firms, fuel/offtake suppliers and operators. Project financing emerged in the 1970s for power projects and has since been used for various industries like mining, transportation and manufacturing.
1. The document discusses portfolio selection using the Markowitz model.
2. The Markowitz model aims to find the optimal portfolio, which provides the highest return and lowest risk. It does this by analyzing different combinations of securities to identify efficient portfolios.
3. The document provides details on the tools and steps used in the Markowitz model for portfolio selection, including analyzing expected returns, variance, standard deviation, and coefficients of correlation between securities.
Financial management involves planning and controlling a company's finances to achieve its objectives. It is concerned with raising financial resources and using them effectively. The scope of financial management includes anticipating financial needs, acquiring funds from various sources, allocating funds to purchase assets, appropriating profits, and assessing all financial activities. Capital budgeting is the process of evaluating long-term investments and determining which investments are worth pursuing. There are various techniques used in capital budgeting such as payback period, net present value, internal rate of return, and profitability index. Working capital management involves managing current assets like inventory, accounts receivable, and cash as well as current liabilities to ensure the company can continue operating and meet short-term obligations.
The document compares the Net Present Value (NPV) and Internal Rate of Return (IRR) methods of evaluating investment projects. While NPV and IRR usually lead to the same decisions for independent projects, they can provide conflicting rankings for mutually exclusive projects. The key differences are that NPV is expressed in absolute terms and considers variations in cash flow timing, while IRR is a percentage rate and does not follow the value additivity principle. The document recommends using NPV over IRR for mutually exclusive projects due to its more realistic assumptions and ability to directly measure profitability and impact on shareholder wealth.
The document discusses the estimation of cash flows for capital budgeting and expenditure decisions. It defines capital expenditures as long-term investments like purchasing assets that generate cash flows beyond one year. It also discusses the importance of accurately estimating cash flows, the difficulties involved, and the key principles and components to consider when estimating cash flows for capital projects.
Project cash flows refer to the incremental future cash inflows and outflows that result directly from a project. Only cash flows that change as a result of accepting or rejecting a project are considered relevant for project analysis. Relevant cash flows include incremental revenue, production costs, taxes, and initial outlays. Depreciation is not a cash flow. Project cash flows are identified and measured on a yearly basis in a cash flow table, which is then used to calculate the net present value of the project.
The document discusses estimating cash flows for capital budgeting projects. It explains that estimating cash flows is the most difficult and error-prone part of capital budgeting. The general approach to cash flow estimation is outlined, including forecasting sales, costs, assets, depreciation, taxes, and cash flows over multiple periods. Specific issues like sunk costs, opportunity costs, and taxes are also discussed. Methods for estimating cash flows for new ventures, expansions, and replacement projects are provided with examples.
The document discusses the benefits of exercise for mental health. Regular physical activity can help reduce anxiety and depression and improve mood and cognitive function. Exercise causes chemical changes in the brain that may help protect against mental illness and improve symptoms.
Cash flow estimation ppt @ bec doms on financeBabasab Patil
The document discusses estimating cash flows for capital budgeting projects. It explains that cash flow estimation involves forecasting sales, costs, expenses, assets needed, depreciation, and taxes over time. The general process is the same for new projects, expansions, and replacements, but replacements typically require less estimation. Key steps are outlined for estimating cash flows for new ventures and replacements, including identifying incremental impacts and dealing with subjective estimates.
A project report on cash and fund flow analysis and ratio analysis of dksskn,...Babasab Patil
The document provides an overview of the industrial profile and history of DKSSKN, Chikodi. It discusses that initially under French rule, the sugar industry started to develop in Mauritius. When Britain gained control in 1810, sugar production grew significantly and became the dominant industry. A key development was the abolition of slavery in 1835, which was opposed by colonists but led to increased immigration of workers from India to replace slave labor. Overall, the British period saw the sugar industry and the Mauritian economy prosper greatly up until independence was achieved in 1968.
This document provides an overview of how to prepare a cash flow statement. It discusses the three sections of a cash flow statement - operating, investing, and financing activities. It explains how to classify items as cash inflows and outflows and the key adjustments needed to convert net income to cash flow from operating activities using the indirect method. Examples are also provided to illustrate how to calculate cash flow for each section.
Cash Flow Statement is a basic concept which every young manager must learn. This presentation excellently explains what you should know about this topic!
The document discusses the cash flow statement and how it provides information about cash inflows and outflows during a period of time for operating, investing, and financing activities. It explains that the cash flow statement highlights cash flows from different activities and is useful for short-term financial planning and cash management. However, it does not show the total financial position or liquidity of a firm.
Capital budgeting and estimating cash flowsIan Isabel
Capital budgeting is the process of identifying, analyzing, and selecting long-term investment projects. It involves generating proposals, estimating after-tax incremental cash flows for projects over their lifetimes, evaluating projects, and selecting projects using techniques like net present value. Cash flows, not accounting income, should be considered, and sunk costs ignored while including opportunity costs. Tax depreciation lowers taxes and affects cash flows. Calculating incremental cash flows involves determining initial outlays, interim cash flows, and terminal cash flows.
The Cash Flow Statement translates earnings in the Income Statement into cash inflows. Explained in detail above as a part of the topic “Financial accounting”, is brought to you by Welingkar’s Distance Learning Division.
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A cash flow statement summarizes the inflows and outflows of cash from operating, investing, and financing activities over a specific period of time. It reveals how cash was generated and where it came from and went to. The primary objective is to provide information on the changes in cash position between two balance sheet dates. Some limitations include that it does not reflect changes in working capital and can be influenced by management policies. A cash flow statement differs from a fund flow statement in that the latter considers changes in net working capital rather than just cash, and is more useful for long-term analysis.
This document provides an overview of cost benefit analysis (CBA). It discusses the history and principles of CBA, including key indicators like net present value. Challenges of CBA like inaccurate cost and benefit estimation are outlined. The document also presents a case study of implementing new computer equipment in an organization and calculating the costs, benefits, and payback period. It concludes that performing a thorough CBA is important for evaluating projects and avoiding erroneous conclusions.
The document discusses cash flow analysis and statements. It explains that cash flow statements show inflows and outflows from operating, financing, and investing activities. It provides examples of analyzing cash flows from these different activities to assess a company's financial health and sustainability. Key things to examine include cash flow from operations, investments, ability to pay debts, and reliance on internal vs external financing.
This document discusses guidelines for capital budgeting cash flow analysis. It covers calculating free cash flows, which have three components: initial cash outlay, annual differential cash flows over the project life, and terminal cash flow. Free cash flows consider operating cash flows from changes in earnings before interest and taxes and depreciation, as well as working capital requirements and capital spending. Depreciation is discussed as affecting taxes and thus cash flows, even though it is a non-cash expense. Guidelines for treatment of items like sunk costs, opportunity costs, and overhead costs are provided.
The document defines key terms related to a cash flow statement such as cash flows, cash equivalents, and the three categories of cash flows - operating, investing, and financing activities. It explains that the cash flow statement classifies cash inflows and outflows according to these three activities. The objectives are to determine the sources and uses of cash from each activity. The document also provides examples of cash inflows and outflows that would be included in each of the three activities.
Solved Cash Flow Statements with Balance Sheet (Vertical) and Notes to Accoun...Dan John
I assure you that this project of mine will fetch you a very good score.
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Go to the links below for the following...
Solved Cbse Class 12 Accountancy Full Project(Comprehensive Project, Ratio Analysis and Cash Flow Statements with Conclusion)
http://www.slideshare.net/dankjohn/solved-cbse-class-12-accountancy-full-projectcomprehensive-project-ratio-analysis-and-cash-flow-statements-with-conclusion
Solved Comprehensive Project Cbse Class 12 Accountancy Project
http://www.slideshare.net/dankjohn/solved-comprehensive-project-cbse-class-12-accountancy-project
Solved Accounting Ratios with Balance Sheet(vertical) and Statement of Profit and Loss - Cbse Class 12 Accountancy Project
http://www.slideshare.net/dankjohn/solved-accounting-ratios-with-balance-sheetvertical-and-statement-of-profit-and-loss-cbse-class-12-accountancy-project
The document discusses the concept of cost-benefit analysis (CBA) for evaluating information systems projects. CBA measures and compares the costs and benefits of a project to determine if its benefits outweigh its costs. The CBA process involves identifying the tangible and intangible costs and benefits of a project, evaluating them, and choosing the system with the lowest costs but highest benefits. CBA is useful for decision making by individuals, companies, and governments.
This document provides an overview of capital budgeting and estimating cash flows from a chapter in a financial management textbook. It defines capital budgeting as the process of identifying, analyzing, and selecting long-term investment projects. It outlines the capital budgeting process, including generating proposals, estimating after-tax cash flows, evaluating projects, and selecting projects. It also discusses how to calculate initial, interim, and terminal cash flows by considering factors like taxes, depreciation, and working capital changes.
502331 capital budgeting and estimating cash flowsZahoor Khan
This document discusses capital budgeting and estimating cash flows from investment projects. It covers the capital budgeting process, generating investment proposals, and estimating after-tax incremental cash flows over the life of a project. Key steps in the capital budgeting process include generating proposals, estimating cash flows, evaluating projects, selecting projects, and reevaluating implemented projects. Cash flows should be estimated for the initial investment outlay, interim periods, and terminal period to evaluate projects.
The document is a project report submitted by Rutuja Deepak Chudnaik for their M.Com degree. The report focuses on comparing the Payback Method and Internal Rate of Return (IRR) Method for capital budgeting and investment decisions. The report includes an introduction to capital budgeting, the objectives and basic principles. It also provides details on the calculation of payback period for projects with constant and uneven cash flows. The report is submitted to the University of Mumbai under the guidance of their project guide, Prof. Dhiren Kanabar.
This document provides information about capital budgeting. It begins with an introduction to capital budgeting, defining it as a firm's process for acquiring and investing capital in long-term projects. It then discusses the capital budgeting process, which includes project generation, evaluation, selection, and follow-up. Key factors that influence capital budgeting decisions are also outlined, such as business risk, tax exposure, financial flexibility, and growth rate. Finally, traditional capital budgeting methods like payback period, accounting rate of return, and discounted cash flow methods are explained.
The document discusses various aspects of financial management including scope, objectives, sources of funds, investment decisions, dividend decisions, liquidity management, and capital budgeting. The key objectives of financial management are to maximize shareholder value and profit through efficient planning, financing, investing, monitoring, and control. A finance manager is responsible for raising capital through equity, debt, and bank loans; making prudent investment decisions using methods like net present value; and ensuring adequate liquidity and working capital. Capital budgeting involves generating, analyzing, selecting, executing, and reviewing investment projects using both non-discounting and discounted cash flow methods.
Capital budgeting decisions are much vital than the decisions on management of working capital as these decisions requires careful analysis of the expected costs and benefits to be derived from each capital expenditure on acquisition of land, building, equipments and for permanent additions to working capital associated with the plant expansion.
The level of investments that maximizes the present value of the firm is simultaneously determined by the interaction of supply and demand forces under conditions of uncertainty
The document provides information about capital budgeting. It defines capital budgeting and discusses the capital budgeting process, which includes identifying investment opportunities, assembling proposals, decision making, budget preparation, implementation, and performance review. It also covers classification of capital projects, features of capital budgeting, estimating cash flows, decision criteria like payback period, accounting rate of return, net present value, profitability index, and internal rate of return.
This document provides an overview and summary of Chapter 10 from the textbook "Principles of Managerial Finance" by Lawrence J. Gitman. Chapter 10 expands on capital budgeting techniques by considering risk factors such as sensitivity analysis, scenario analysis, and simulation. It also examines evaluating international projects and risk adjustment methods like certainty equivalents and risk-adjusted discount rates. The document provides learning resources for students on these topics, including a problem solver, study guide examples, and answers to chapter review questions to help students understand the concepts covered in the chapter.
Chapter 10: Risk and Refinements In Capital BudgetingFiaz Ahmad
This document provides an overview and summary of Chapter 10 from the textbook "Principles of Managerial Finance" by Lawrence J. Gitman. Chapter 10 expands on capital budgeting techniques by considering risk factors such as sensitivity analysis, scenario analysis, and simulation. It also examines evaluating international projects and risk adjustment methods like certainty equivalents and risk-adjusted discount rates. The document provides learning resources for students on these topics, including a problem solver, study guide examples, and answers to review questions from the chapter.
Capital budgeting is the process of planning long-term investments and allocating funds. It involves analyzing potential capital projects to determine which will be most profitable. Some key aspects of capital budgeting include evaluating projects based on cash flows rather than accounting profits, considering opportunity costs and tax implications, and ensuring project rates of return exceed the required cost of capital. Common techniques for evaluating projects include net present value analysis, internal rate of return, payback period, and profitability index. Capital budgeting helps firms make optimal investment decisions to maximize long-term value.
Project Management: Unit IV - Project Appraisal CriteriaGhaith Al Darmaki
Here are the steps to solve this problem:
1) Calculate cash flows after tax (CFAF) by applying the tax rate of 50% on CFBT
2) Discount CFAF at different discount rates (say 10%, 15%, 20%) to calculate NPV
3) The discount rate at which NPV is zero is the IRR
4) Plug the values in an IRR formula/function to calculate the exact IRR
The IRR will be the decision criterion to accept or reject the project. If IRR exceeds the cost of capital, accept it, else reject.
This document discusses the key principles of financial management. It outlines 10 foundational principles for financial management, including risk-return tradeoffs, time value of money, and cash flow analysis. These principles help companies evaluate investments and maximize value. The document also provides answers to various questions about capital budgeting techniques, including net present value calculations and risk analysis methods.
Sheet1Total initial investment$100millionPeriod10yearsProject plan 1leasing of trucks (Estimations)Leasing costs$750,000expected returns$100,000Period9yearsPayback period = cost of the project/annual cash flowspayback period = 7.5yearsThe project would be worth undertaking since the payback period is 7.5 years while the project will take 9 years.NPVAssuming required rate of return = 10%Cash flows$100,000Initial investment$750,000NPV = ($174,097.62)The NPV of leasing truck project is negative thsu according to this techniques, it is not profitable to undertake such a project.Project plan 2Introduction of new trailer partsAssuming required rate of return = 10%Expected annual cash flows$850,000Initial costs$4,600,000NPV$622,882.04The project is worth undertakingPayback periodExpected annual cash flows$850,000Initial costs$4,600,000Period10yearsPayback period = 5.4117647059The project should be undertaken.Project plan 3Starting a new outletAssuming required rate of return = 10%Expected annual cash flows$7,780,000Initial costs$38,600,000NPV$9,204,732.08The project is worth undertakingPayback periodExpected annual cash flows$7,780,000Initial costs$38,600,000Period10yearsPayback period = 4.9614395887The project should be undertaken.
Sheet2
Sheet3
Capital planning cycle
Eugene Douglass
Tiffany Simons
Angeline Petion
AIU Online
1
Introduction
A capital plan analyze all the expected projects to be carried out by the UPC Company for a period of 10 years given the amount of $100 million is to be used for the projects.
A workable plan should be developed in order to ensure the set budget is met and proper use of the funds.
Any additional funds needed would be obtained from the sale of fleet of trucks.
2
Capacity condition and need assessment
For proper implementation of the capital plan, the company management team should have a well drawn plan for each project extent and the conditions necessary for the project to be successful.
Different projects require differing needs and thus the company should have a well established requirements for each project to be undertaken.
This stage takes care of the various projects requirement in advance before the start of the capital plan.
3
…
Having clear knowledge of the needs of each specific project makes easy for the projects to deliver as expected.
It make available all the skilled man power for the expected projects and the resources.
Project proposal discussions and management
Capital plan project proposal entails giving the summary of the proposed projects to be carried out.
UPC Company intends to maintain competitive in the market.
The objectives of undertaking the projects would be to improve the company products and services provided.
…
Management is obligated to undertake project monitoring during the 10 year capital plan.
The company capital structure is 30% debt and 70% equity, hence for future funding, the company may decide to issue its shares to the public or borrow.
Capital .
The document discusses key aspects of the capital budgeting process, including:
1) The main steps such as brainstorming ideas, analyzing cash flows, integrating projects, and post-auditing.
2) Types of capital projects like replacement, expansion, new products, and regulatory projects.
3) Methods for evaluating projects like NPV, IRR, payback period, and profitability index.
4) Estimating cash flows, costs of capital including WACC, and dealing with conflicts between methods.
So in summary, it provides an overview of the capital budgeting process, types of projects, evaluation methods, and considerations for costs and cash flows.
This chapter discusses the importance of cash flow management for projects. It defines cash flow as the movement of funds in and out of a project over time. Poor cash flow can cause projects to fall behind schedule and over budget. The chapter examines cash flow considerations for both project sponsors and contractors. It also covers various methods for evaluating project financial viability, including net present value, internal rate of return, profitability index, and payback period. Finally, it discusses payment arrangements, claims, variations, price adjustments, and retentions which all impact project cash flows.
The document discusses various capital budgeting techniques for evaluating investment projects. It begins by introducing capital budgeting and some key concepts. It then describes the payback period method and its limitations, such as ignoring cash flows after the payback point and not accounting for the time value of money. The document also discusses the discounted payback period method and the accounting rate of return (ARR) method. It provides examples and evaluates the strengths and weaknesses of each technique.
Manajemen Keuangan Lanjutan - Capital BUdgeting.pdfAhmadFikri217704
This document discusses various capital budgeting techniques used to evaluate investment projects, including payback period, net present value (NPV), profitability index (PI), and internal rate of return (IRR). It provides formulas and examples of calculating each technique. For payback period, it calculates the number of years to recover the initial investment. For NPV, PI, and IRR, it discounts future cash flows to the present using a given cost of capital to determine which projects should be accepted. The document also includes an exercise involving three investment project options to calculate and compare the metrics to recommend the best project.
Bba 2204 fin mgt week 10 capital budgetingStephen Ong
This document provides an overview of capital budgeting techniques. It begins with learning goals related to calculating and evaluating various capital budgeting methods. It then defines capital budgeting and the capital budgeting process. The document reviews techniques like payback period, net present value (NPV), internal rate of return (IRR), and net present value profiles. It discusses pros and cons of different methods and how NPV and IRR can sometimes provide conflicting rankings. Examples are provided to demonstrate calculating each technique. The summary reviews key capital budgeting concepts and methods covered.
Beyond Degrees - Empowering the Workforce in the Context of Skills-First.pptxEduSkills OECD
Iván Bornacelly, Policy Analyst at the OECD Centre for Skills, OECD, presents at the webinar 'Tackling job market gaps with a skills-first approach' on 12 June 2024
ISO/IEC 27001, ISO/IEC 42001, and GDPR: Best Practices for Implementation and...PECB
Denis is a dynamic and results-driven Chief Information Officer (CIO) with a distinguished career spanning information systems analysis and technical project management. With a proven track record of spearheading the design and delivery of cutting-edge Information Management solutions, he has consistently elevated business operations, streamlined reporting functions, and maximized process efficiency.
Certified as an ISO/IEC 27001: Information Security Management Systems (ISMS) Lead Implementer, Data Protection Officer, and Cyber Risks Analyst, Denis brings a heightened focus on data security, privacy, and cyber resilience to every endeavor.
His expertise extends across a diverse spectrum of reporting, database, and web development applications, underpinned by an exceptional grasp of data storage and virtualization technologies. His proficiency in application testing, database administration, and data cleansing ensures seamless execution of complex projects.
What sets Denis apart is his comprehensive understanding of Business and Systems Analysis technologies, honed through involvement in all phases of the Software Development Lifecycle (SDLC). From meticulous requirements gathering to precise analysis, innovative design, rigorous development, thorough testing, and successful implementation, he has consistently delivered exceptional results.
Throughout his career, he has taken on multifaceted roles, from leading technical project management teams to owning solutions that drive operational excellence. His conscientious and proactive approach is unwavering, whether he is working independently or collaboratively within a team. His ability to connect with colleagues on a personal level underscores his commitment to fostering a harmonious and productive workplace environment.
Date: May 29, 2024
Tags: Information Security, ISO/IEC 27001, ISO/IEC 42001, Artificial Intelligence, GDPR
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LAND USE LAND COVER AND NDVI OF MIRZAPUR DISTRICT, UPRAHUL
This Dissertation explores the particular circumstances of Mirzapur, a region located in the
core of India. Mirzapur, with its varied terrains and abundant biodiversity, offers an optimal
environment for investigating the changes in vegetation cover dynamics. Our study utilizes
advanced technologies such as GIS (Geographic Information Systems) and Remote sensing to
analyze the transformations that have taken place over the course of a decade.
The complex relationship between human activities and the environment has been the focus
of extensive research and worry. As the global community grapples with swift urbanization,
population expansion, and economic progress, the effects on natural ecosystems are becoming
more evident. A crucial element of this impact is the alteration of vegetation cover, which plays a
significant role in maintaining the ecological equilibrium of our planet.Land serves as the foundation for all human activities and provides the necessary materials for
these activities. As the most crucial natural resource, its utilization by humans results in different
'Land uses,' which are determined by both human activities and the physical characteristics of the
land.
The utilization of land is impacted by human needs and environmental factors. In countries
like India, rapid population growth and the emphasis on extensive resource exploitation can lead
to significant land degradation, adversely affecting the region's land cover.
Therefore, human intervention has significantly influenced land use patterns over many
centuries, evolving its structure over time and space. In the present era, these changes have
accelerated due to factors such as agriculture and urbanization. Information regarding land use and
cover is essential for various planning and management tasks related to the Earth's surface,
providing crucial environmental data for scientific, resource management, policy purposes, and
diverse human activities.
Accurate understanding of land use and cover is imperative for the development planning
of any area. Consequently, a wide range of professionals, including earth system scientists, land
and water managers, and urban planners, are interested in obtaining data on land use and cover
changes, conversion trends, and other related patterns. The spatial dimensions of land use and
cover support policymakers and scientists in making well-informed decisions, as alterations in
these patterns indicate shifts in economic and social conditions. Monitoring such changes with the
help of Advanced technologies like Remote Sensing and Geographic Information Systems is
crucial for coordinated efforts across different administrative levels. Advanced technologies like
Remote Sensing and Geographic Information Systems
9
Changes in vegetation cover refer to variations in the distribution, composition, and overall
structure of plant communities across different temporal and spatial scales. These changes can
occur natural.
Strategies for Effective Upskilling is a presentation by Chinwendu Peace in a Your Skill Boost Masterclass organisation by the Excellence Foundation for South Sudan on 08th and 09th June 2024 from 1 PM to 3 PM on each day.
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it describes the bony anatomy including the femoral head , acetabulum, labrum . also discusses the capsule , ligaments . muscle that act on the hip joint and the range of motion are outlined. factors affecting hip joint stability and weight transmission through the joint are summarized.
A review of the growth of the Israel Genealogy Research Association Database Collection for the last 12 months. Our collection is now passed the 3 million mark and still growing. See which archives have contributed the most. See the different types of records we have, and which years have had records added. You can also see what we have for the future.
1. Prepared By
Ghaith Al Darmaki
gm.al.darmaki@gmail.com
MBA for Engineering Business Managers
Manchester Business School
2. Introduction
Elements of The Cash Flow Stream
Basic Principles of Cash Flow Estimation
Separation principle
Incremental principle
Post-tax principle and
Consistency principle.
Long Term Funds Principle
Project Management - Unit III Prepared By: Ghaith Al Darmaki 2
3. Estimating cash flows – the investment outlays and
the cash inflows after the project is commissioned –
is the most important, but also the most difficult
step in capital budgeting.
Estimating cash flows process involves many people
and numerous variables Errors in forecasting.
Project Management - Unit III Prepared By: Ghaith Al Darmaki 3
4. Elements of The Cash
Flow Stream
p e
co
o fS
t
Ou
Project Management - Unit III Prepared By: Ghaith Al Darmaki 4
5. Elements of The Cash
Flow Stream
A project which involves cash outflows followed by cash
inflows comprises of three basic components. They are,
Initial investment: Initial investment is the after-tax
cash outlay on capital expenditure and net working
capital when the project is set up.
Operating cash inflows: The operating cash inflows
are the after-tax cash inflows resulting from the
operations of the project during its economic life.
Terminal cash inflow: The terminal cash inflow is the
after-tax cash flow resulting from the liquidation of the
project at the end of its economic life.
Project Management - Unit III Prepared By: Ghaith Al Darmaki 5
6. Elements of The Cash
Flow Stream
f
toe
Ou o p
Sc
Project Management - Unit III Prepared By: Ghaith Al Darmaki 6
7. Basic Principles of Cash
Flow Estimation
The following principles should be followed while
estimating the cash flows of a project:
Incremental principle
Separation principle
Post-tax principle
Consistency principle.
Project Management - Unit III Prepared By: Ghaith Al Darmaki 7
8. Basic Principles of Cash
Flow Estimation
Incremental principle:
The cash flow of a project must be measured in
incremental terms.
To ascertain a project’s incremental cash flow
one has to look at what happens to the cash
flows of the firm with the project and without
the project.
The difference between the two reflects the
incremental cash flows attributable to the
project. (Cash flow for the firm - (Cash flow for the firm
(Project cash
flow for the
=
with the project for without the project
year t) the year t) for the year t)
Project Management - Unit III Prepared By: Ghaith Al Darmaki 8
9. Basic Principles of Cash
Flow Estimation
Incremental principle:
In estimating the incremental cash flows of a
project, the following guidelines must be borne in
mind:
Consider all incidental effects.
Ignore sunk costs.
Include opportunity costs.
Question the allocation of overhead costs.
Estimate working capital properly
Project Management - Unit III Prepared By: Ghaith Al Darmaki 9
10. Basic Principles of Cash
Flow Estimation
Incremental principle:
Consider all incidental effects: In addition to
the direct cash flows of the project, all its
incidental effects on the rest of the firm must
be considered. The project may enhance the
profitability of some of the existing activities of
the firm because it has a complimentary
relationship with the; or it may detract from the
profitability of some of the existing activities of
the firm because it has a competitive relationship
with them-all these effects must be taken into
account.
Project Management - Unit III Prepared By: Ghaith Al Darmaki 10
11. Basic Principles of Cash
Flow Estimation
Example of incidental effects
A company X introduce a new car model which caused a
decrease in the sale of another model.
Decreased CF per year on other lines would be a
cost to this project.
This is an incidental effect to the project.
e
c op
o fS
O ut
Project Management - Unit III Prepared By: Ghaith Al Darmaki 11
12. Basic Principles of Cash
Flow Estimation
Incremental principle:
Ignore sunk costs:
A sunk cost refers to an outlay already incurred in
the past or already committed irrevocably.
So it is not affected by the acceptance or rejection of
the project under consideration.
example, a company is debating whether it should invest
in a project. The company has already spent R.O. 10,000
for preliminary work meant to generate information
useful for this decision. This R.O. 10,000 represents a
sunk cost as it cannot be recovered irrespective of
whether the project is accepted or not.
Project Management - Unit III Prepared By: Ghaith Al Darmaki 12
13. Basic Principles of Cash
Flow Estimation
Example of sunk costs
You plan to produce a new car model using a
technology you bought last year at 50,000 OMR.
Should this 50,000 OMR cost from the previous year be
included in the analysis?
No, this cost is a sunk cost and should not be
considered. e
c op
o fS
O ut
Project Management - Unit III Prepared By: Ghaith Al Darmaki 13
14. Basic Principles of Cash
Flow Estimation
Incremental principle:
Include opportunity costs:
If a project uses resources already available with
the firm, there is a potential for an opportunity
cost.
The opportunity cost of a resource is the
benefit that can be derived from it by
putting it to its best alternative use.
For example, if a project uses a vacant factory
building owned by the firm, the revenue that can
be derived from renting out this building
represents the opportunity cost.
Project Management - Unit III Prepared By: Ghaith Al Darmaki 14
15. Basic Principles of Cash
Flow Estimation
Incremental principle:
Question the allocation of overhead costs:
Costs which are only indirectly related to a
product (or service) are referred to as overhead
costs.
They include items like general administrative
expenses, managerial salaries, legal expenses,
rent and so on.
When a new project is proposed, a portion of
the overhead costs of the firm is usually
allocated to it.
Project Management - Unit III Prepared By: Ghaith Al Darmaki 15
16. Basic Principles of Cash
Flow Estimation
Incremental principle:
Estimate working capital properly: Outlays on working
capital have to be properly considered while forecasting the
project cash flows. In this context the following points must
be noted:
Working capital is defined as “Current Assets – Current
Liabilities”
The requirement of working capital is likely to change
over time as the output of the project changes.
Working capital is renewed periodically and hence is not
subject to depreciation. Therefore, the working capital
at the end of the project life is assumed to have a salvage
value equal to its book value.
Project Management - Unit III Prepared By: Ghaith Al Darmaki 16
17. Basic Principles of Cash
Flow Estimation
The following principles should be followed while
estimating the cash flows of a project:
Incremental principle
Separation principle
Post-tax principle
Consistency principle.
Project Management - Unit III Prepared By: Ghaith Al Darmaki 17
18. Basic Principles of Cash
Flow Estimation
Separation principle
There are two sides of a project:
The investment (or asset) side
The financing side
The cash flows associated with these sides should be
separated.
Project Management - Unit III Prepared By: Ghaith Al Darmaki 18
19. Basic Principles of Cash
Flow Estimation
Separation principle
Example:
Suppose a firm is considering a one-year project that
requires an investment of R.O. 1000 in fixed assets and
working capital at time 0. The project is expected to
generate a cash inflow of R.O. 1200 at the end of year 1 (this
is the only cash flow expected from the project). The project
will be financed entirely by debt carrying an interest rate of
15 percent and maturing after 1 year. Assume there are no
taxes.
Project Management - Unit III Prepared By: Ghaith Al Darmaki 19
20. Basic Principles of Cash
Flow Estimation
Example:
Project Management - Unit III Prepared By: Ghaith Al Darmaki 20
21. Basic Principles of Cash
Flow Estimation
Separation principle
Example (continue ..)
The cash flows on the investment side of the project
includes the rate of return of 20% and do not reflect the
financing costs of 15% (interest in our example).
The cash flows on the financing side of the project includes
the financing cost of 15% (interest in our example) and do
not reflect on the rate of return of 20%.
The important point is that while estimating the cash flows
on the investment side do not consider financing costs like
interest or dividend.
Project Management - Unit III Prepared By: Ghaith Al Darmaki 21
22. Basic Principles of Cash
Flow Estimation
The following principles should be followed while
estimating the cash flows of a project:
Incremental principle
Separation principle
Post-tax principle
Consistency principle.
Project Management - Unit III Prepared By: Ghaith Al Darmaki 22
23. Basic Principles of Cash
Flow Estimation
Post-tax principle
Cash flow should be measured on an after-tax
basis.
This is used to bring out the project cash flows
with accuracy.
Consistency principle
Once you adopt an accounting principle or
method, you should continue to follow it
consistently in future accounting periods.
t of
Ou o p e
Sc
Project Management - Unit III Prepared By: Ghaith Al Darmaki 23
24. Cash flows relating to long
term funds
The cash flow stream relating to long-term funds consists of
three components as follows:
Initial investment: Long-term funds invested in the
project. This is equal to:
Fixed assets + working capital margin (this represents
the portion of current assets supported by long-term
funds)
Operating cash inflow:
Profit after tax + Depreciation + Other noncash charges
+ Interest on long-term borrowings (1-tax rate)
Terminal cash flow:
Net salvage value of fixed assets + Net recovery of
working capital margin
Project Management - Unit III Prepared By: Ghaith Al Darmaki 24
25. Cash flows relating to long
term funds
Illustration:
Magnum Technologies Limited is evaluating an electronics project for which the following
information has been assembled. Prepare a net cash flow statement relating to long-
term funds:
The total outlay on the project is expected to be R.O. 50 million. This consists of
R.O. 30 million of fixed assets and R.O. 20 million of current assets.
The total outlay of R.O. 50 million is proposed to be financed as follows: R.O. 15
million of equity, R.O. 20 million of term loans, R.O. 10 million of bank finance for
working capital and R.O. 5 million of trade credit.
The term loan is repayable in five equal installments of R.O. 4 million each. The first
installment will be due at the end of the first year and the last installment at the end
of the fifth year. The levels of bank finance for working capital and trade credit will
remain at R.O. 10 million and R.O. 5 million till they are paid back or retired at the
end of five years.
The interest rates on the term loan and bank finance for working capital will be 15
percent and 18 percent respectively.
The expected revenues from the project will be R.O. 60 million per year. The
operating costs, excluding depreciation, will be R.O. 42 million. The depreciation
rate on the fixed assets will be 33 and 1/3 percent as per the written down value
method.
The net salvage value of fixed assets and current assets at the end of year 5 will be
R.O. 5 million and R.O. 20 million respectively.
The tax rate applicable to the firm is 50 percent.
Project Management - Unit III Prepared By: Ghaith Al Darmaki 25
26. Cash flows relating to long
term funds
Initial investment= Fixed assets + working capital
margin
Operating cash inflow = Profit after tax +
Depreciation + Other noncash charges + Interest on
long-term borrowings (1-tax rate)
Terminal cash flow = Net salvage value of fixed assets
+ Net recovery of working capital margin
Project Management - Unit III Prepared By: Ghaith Al Darmaki 26
27. Cash flows relating to long
term funds
Microsoft Excel
Worksheet
Project Management - Unit III Prepared By: Ghaith Al Darmaki 27