Perhitungan Capital Budgeting Cash Flows

dengan Konsep Time Value of Money

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Project Cash Flows
• Major Cash Flow Types
– Initial Investment
 The incremental cash flows for a project at time zero
– Operating Cash Flows
 The net incremental after-tax cash flows occurring each period
during the project’s life
– Terminal Cash Flows
 The net after-tax cash flow occurring in the final year of the
project

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Project Cash Flows
• Replacement versus Expansion Decisions
– Expansion decisions include investments designed to
increase the capacity of a factory, to launch a product in a
new market, or to open a new location
 Identifying incremental cash flows along with developing net
cash flow estimates is relatively straightforward
– Replacement decisions are perhaps even more common
 The firm must decide whether to replace some asset that it
already owns with a new asset
 Identifying incremental cash flows for these sorts of investment
projects is more complicated because the firm must compare
the cash flows that result from the new investment to the cash
flows that would have occurred if no investment had been
made
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Relevant Net Cash Flows for Replacement
Decisions

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Project Cash Flows
• Sunk Costs and Opportunity Costs
– Sunk Costs
 Cash outlays that have already been made (past outlays) and
cannot be recovered, whether or not the firm follows through
and makes an investment
 Sunk costs are irrelevant and should not be included in a
project’s incremental cash flows
– Opportunity Costs
 Cash flows that could have been realized from the best
alternative use of an owned asset
 Opportunity costs are relevant and should be included as part
of the cash flow projections when determining a project’s net
cash flows

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Finding the Initial Investment
• Installed Cost of the New Asset
– Cost of the New Asset
 The cash outflow necessary to acquire a new asset
– Installation Costs
 Any added costs that are necessary to place the new asset
into operation
– Installed Cost of the New Asset
 The cost of the new asset plus its installation costs; equals the
asset’s depreciable value

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The Basic Format for Determining
Initial Investment
(1) Installed cost of the new asset =
Cost of the new asset
+ Installation costs
(2) After-tax proceeds from the sale of the old asset =
Proceeds from the sale of the old asset
±Tax on the sale of the old asset
(3) Change in net working capital
Initial Investment = (1) − (2) ± (3)

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Finding the Initial Investment
• Change in Net Working Capital
– Net Working Capital
 The difference between the firm’s current assets and its
current liabilities
– Change in Net Working Capital
 The difference between the change in current assets and the
change in current liabilities

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Example
Danson Company is expanding. Analysts expect that the
changes summarized in Table 11.3 will occur and will be
maintained over the life of the expansion. Current assets will
increase by $22,000, and current liabilities will increase by
$9,000, resulting in a $13,000 increase in net working capital.
This increase in net working capital is part of the initial cash
outflow required to begin the expansion project, so we treat it
as a cash outflow in calculating the initial investment.

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Calculation of Change in Net Working
Capital for Danson Company
Current account Change in balance  Blank
Cash + $ 4,000  Blank
Accounts receivable + 10,000  Blank
Inventories + 8,000  Blank
(1) Current assets  Blank + $22,000
Accounts payable + $ 7,000  Blank
Expense accruals + 2,000  Blank
(2) Current liabilities  Blank + $ 9,000
Change in net working capital= (1) − (2)  Blank + $13,000

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Calculation of Operating Cash Flows Using
the Income Statement Format
Revenue
− Expenses (excluding depreciation and interest)
Earnings before interest, taxes, depreciation, and amortization (EBITDA)

− Depreciation
Earnings before interest and taxes (EBIT)
− Taxes (rate = T)
Net operating profit after taxes [NOPAT = EBIT × (1 − T)]
+ Depreciation
Operating cash flows (OCF) (same as OCF in Equation 4.3)

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Finding the Terminal Cash Flow
After-tax proceeds from the sale of the new machine  Blank Blank
Proceeds from the sale of the new machine $50,000 Blank
− Tax on sale of the new machine 6,300 Blank
Total after-tax proceeds: new machine Blank $43,700
− After-tax proceeds from the sale of the old machine Blank Blank
Proceeds from the sale of the old machine $10,000 Blank
− Tax on the sale of the old machine 2,100 Blank
Total after-tax proceeds: old machine Blank 7,900
+ Change in net working capital Blank 17,000
Terminal cash flow Blank $52,800

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