tailieunhanh - Lecture Fundamentals of corporate finance (3/e): Chapter 11 - Robert Parrino, David S. Kidwell, Thomas Bates

chapter 11, cash flows and capital budgeting. This chapter presents the following content: Estimating cash flows: relevant cash flows, working capital treatment, inflation; risk analysis: sensitivity analysis, scenario analysis, and simulation analysis. | Fundamentals of Corporate Finance, 3/e Robert Parrino, . David S. Kidwell, . Thomas W. Bates, . 1 Copyright© 2015 John Wiley & Sons, Inc. Chapter 11: Cash Flows and Capital Budgeting Learning Objectives Explain why incremental after-tax free cash flows are relevant in evaluating a project and calculate them for a project Discuss the five general rules for incremental after-tax free cash flow calculations and explain why cash flows stated in nominal (real) collars should be discounted using a nominal (real) discount rate Describe how distinguishing between variable and fixed costs can be useful in forecasting operating expenses Copyright© 2015 John Wiley & Sons, Inc. 3 Learning Objectives Explain the concept of equivalent annual cost and use it to compare projects with unequal lives, decide when to replace an existing asset, and calculate the opportunity cost of using an existing asset Determine the appropriate time to harvest an asset Copyright© 2015 John Wiley & Sons, Inc. 4 Calculating Project Cash Flows Cash Flows and Profit To provide adequate net cash flow, the average selling price of a unit should not be less than the sum of the cost of making the unit, the fixed cost (overhead) for the unit, and an adequate return (in $) for the unit Capital budgeting involves estimating the NPV of the cash flows a project is expected to produce in the future All of the cash flow estimates are forward-looking rather than historical accounting information Cash flows that have already occurred or will occur regardless of the outcome of the capital budgeting decision are not considered (sunk costs) Incremental Free Cash Flows Only incremental after-tax cash flow is used in an NPV analysis; this is the amount of additional unrestricted free cash flow (FCF) a firm will have if the project is adopted Free cash flow is cash remaining after a firm has made necessary project-related expenditures for working capital and long-term assets FCF is cash a firm can distribute | Fundamentals of Corporate Finance, 3/e Robert Parrino, . David S. Kidwell, . Thomas W. Bates, . 1 Copyright© 2015 John Wiley & Sons, Inc. Chapter 11: Cash Flows and Capital Budgeting Learning Objectives Explain why incremental after-tax free cash flows are relevant in evaluating a project and calculate them for a project Discuss the five general rules for incremental after-tax free cash flow calculations and explain why cash flows stated in nominal (real) collars should be discounted using a nominal (real) discount rate Describe how distinguishing between variable and fixed costs can be useful in forecasting operating expenses Copyright© 2015 John Wiley & Sons, Inc. 3 Learning Objectives Explain the concept of equivalent annual cost and use it to compare projects with unequal lives, decide when to replace an existing asset, and calculate the opportunity cost of using an existing asset Determine the appropriate time to harvest an asset Copyright© 2015 John Wiley & Sons, .