Chapter 10 Flashcards
When do tax savings occur?
When the difference between Sale price and BV are a deficit.
What is a relevant cash flow?
A change in a firms overall future cash flows that occur due to a decision to take on a project.
What is an incremental cash flow?
The change in a firms cash flow as a result of a decision.
What is the stand-alone principal?
When making an evaluation of a project we must only focus on incremental cash flows.
What is a sunk cost?
A cost already paid or have the liability to pay- therefore not regarded when making decisions.
What is erosion?
When you undertake a project there may be loss of sales to current projects.
What is NWC made up of?
Current Assets- Current Liabilities
How is project cash flows calculated?
OCF- Capital Spending- CHANGE IN NWC
How is project OCF calculated?
EBIT
+Dep
-Taxes
What are MACRS?
Asset classes that determine the life and depreciation of an asset
How is Cash Income calculated?
Sales less increase in ACC Receivable
Do we deduct interest expense in Pro Forma Financial statements?
No.
What is the bottom up approach?
When we take the NI and add non-cash expenses.
How is the top-down approach calculated?
Sales-Costs-Taxes
What are the special cases or DCF
I) Evaluating cost cutting proposals
II.) Comparing two or more projects with different lives
III.) Setting a bid price
