Professional Documents
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Chapter 12
Analyzing Project
Cash Flows
Investment in
Increase in Increase in Increase in
Net Operating
Accounts Receivable Inventories Accounts P ayable
W orking Capital
Years 0 1 2 3 4 5
Cash flow OCF1 OCF2 OCF3 OCF4 OCF5
Salvage Value −
− Depreciation −$40,000
+ Depreciation $40,000
− Depreciation −$40,000
+ Depreciation $40,000
1 1 1
Rate ( k ) Rate (k ) Rate ( k )
Cost of making the investment Present value of the investment’s cash inflows =
= Initial cash flow, this is Present value of the project’s future cash inflows.
typically a cash outflow taking
on a negative value.
Lower than depreciated value (or book Difference between the depreciated book value and
value) selling price is a taxable loss and may be used to offset
capital gains.
Years
0 1 2 3 4 5
MINUS
EQUALS