Chapter 8 - FCF

Question 1

FCF

Answer 1

Free cash flows

Question 2

What are free cash flows

Answer 2

A cash flow that is discounted back, These are a direct result of the project being considered. Cash from a project that a firm can distribute to investors because they dont need it for capital of fixed asset investment

Question 3

Incremental Cash Flows

Answer 3

Difference between a firms future cash flows with and without the project. The cash flows that will be added o the business if a project is adopted

Question 4

What is After Tax Salvage

Answer 4

Works out how much the asset sold for, is left at the end of a project and isnt needed, so is normally sold.

Question 5

Depreciation

Answer 5

Allocates the cost of an asset over the assets life. Cost of the asset/ useful life of the asset

Question 6

Steps to work out after tax salvage:

Answer 6

1- Work out depreciation each year
2- Work out accumulated depreciation at sold date
3- Calculate assets book value
4- Calculate After Tax Salvage Value

Question 7

Net Working Capital

Answer 7

Short term capital invested by a firm to manage the day to day operations of a project

Question 8

Operating Cash Flow

Answer 8

Earnings of the business + depreciation because Dep is a non cash expense. OCFS occur ever year except year 0

Question 9

Free Cash Flows

Answer 9

OCF
Change in NWC
CAPEX + After Tax Salvage

Question 10

CAPEX

Answer 10

The initial costs of investment in property plant and equipment.