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Accounting and Finance Revision Notes_2

Tham khảo tài liệu 'accounting and finance revision notes_2', tài chính - ngân hàng, kế toán - kiểm toán phục vụ nhu cầu học tập, nghiên cứu và làm việc hiệu quả | Investing in Long-Term Assets and Capital Budgeting CHAPTER 2 6. Column 6 is the after-tax cash flow to be used in the various capital budgeting models for the evaluation of the proposals. Ten Cash Flow Items to Check on Capital Budget Proposals This list of 10 cash flow items to be considered in evaluating a capital budget proposal is not intended to be exhaustive. However these items should be carefully scrutinized for every proposal so that you can make a complete evaluation of appropriate costs. 1. Plant and equipment items 2. Installation and debugging of equipment and systems 3. Inventories including consideration of Raw materials Work-in-process Finished goods Spare parts 4. Market research and product introduction 5. Training 6. System changes necessitated by engineering changes and product redesign 7. Accounts receivable 8. Accounts payable 9. Taxes to include Income Investment tax credits Property tax Credits 10. Cash and requirements for cash working capital Inflation and Cash Flow Estimates When estimating cash flows inflation should be anticipated and taken into account. Often there is a tendency to assume that the price for the product and the associated costs will remain constant throughout the life of the project. Occasionally this assumption is 57 Preparing to Operate the Business SECTION I made unwittingly and future cash flows are estimated simply on the basis of existing prices. If anticipated inflation is embodied in the required return criteria it is important that it also be reflected in the estimated cash flows from the product over the life of the project. To reflect cash flows properly in later periods consider adjusting both the expected sales price and the expected costs by reasonable inflation numbers. You may assume that if all proposals are evaluated without consideration of inflation the decision matrix will be unchanged. This is not necessarily the case. As in the case for the generation of internal rates of return inflation will .