Download
cash flow vs accounting income n.
Skip this Video
Loading SlideShow in 5 Seconds..
Cash Flow vs. Accounting Income PowerPoint Presentation
Download Presentation
Cash Flow vs. Accounting Income

Cash Flow vs. Accounting Income

323 Vues Download Presentation
Télécharger la présentation

Cash Flow vs. Accounting Income

- - - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript

  1. Cash Flow vs. Accounting Income • Project Income Statement • Revenues • - Depreciation (D) • - All other costs • EBT • - Taxes • Project NI (PNI) • Cash flow = PNI + Noncash expenses • = PNI + Depreciation

  2. Cash Flow Time Line • 0 1 2 3 4 • CF0 OCF1 OCF2 OCF3 OCF4 • Initial + • Cash Outlay Terminal • Cash Flow • NCF0 NCF1 NCF2 NCF3 NCF4 • Distinguish among: • 1. Initial cash outlay. • 2. Operating cash flows. • 3. Terminal cash flow.

  3. Data on 4 Period Expansion Project • n: 4 Years • Sales Revenues: $60,000,000 per year starting 2007 • Variable Costs: 70% of sales per year • Fixed Costs: $8,000,000 per year • Building: $12,000,000 in 2006 • Depreciation: MACRS - 39 • 2010 Mrkt Value: $7,500,000 • Equipment: $8,000,000 in 2006 • Depreciation: MACRS - 5 • 2010 Mrkt Value: $2,000,000 • Net Working • Capital (NWC): $6,000,000 • Tax: 40% • Cost of Capital • (WACC): 12%

  4. BQC Expansion Project ($000s) • Building ($12,000) • Equipment (8,000) • Increase in NWC (6,000) • Total Investment ($26,000)

  5. BQC Expansion Project ($000s)

  6. Calculating Net Salvage After Tax • 1) Book Value = original value - accumulated depreciation • 2) Capital Gain or (Loss) = selling price - book value • 3) Net Salvage Value After Tax • = selling price - capital gain tax • OR • = selling price + tax savings from book loss • Accumulated depreciation for Building = $1,092,000 • Accumulated depreciation for Equipment = $6,640,000

  7. 1. Buy building : cash flow = ( 12,000 ) • 2. Buy machine : cash flow = ( 8,000 ) • 3. Annual tax saving from building depreciation • 4. Annual tax saving from machine • 5. Annual income after tax • 6. NWC • 7. Salvage in year 2010

  8. Accounting Depreciation( Building ) = 1,092 • Accounting Depreciation( Equipment ) = 6,640 • Book value(Building) = 12,000 - 1,092 = 10,908 • Book value (Eqipment)=8,000 - 6,640 = 1,360

  9. BQC Expansion Project • Year 1 2 3 4 • Depreciation • (Building) 1.3% 2.6% 2.6% 2.6% • Depreciation • (Equipment) 20.0% 32.0% 19.0% 12.0%

  10. Time line of consolidated cash flows(000’s) • 2006 2007 2008 2009 2010 • -26,000 6,702 7,149 6,733 23,116 • Payback period: 3.23 Years • IRR: 19.3% versus a 12% cost of capital • MIRR: 17.2% versus a 12% cost of capital • NPV: $5,166

  11. Net Salvage Values - + Total cash flow from salvage value = $8,863,200 + $1,744,000 = $10,607,200

  12. Data on Replacement Analysis • Cost of M1 (10 years ago): $7,500 • Expected Life: 15 years • Salvage: 0 • Depreciation Method: Straight line • Market value (today): $1,000 • Cost of M2 (today): $12,000 • Depreciation Method: MACRS- 3 years • Salvage (at year 5): $2,000 • Increase in Net Working Capital: $1,000 • Increase in Earnings (before tax): $3,000 per • (or decrease in costs) year • Tax 40% • WACC 11.5%

  13. Replacement Analysis Worksheet • 1) Investment Outlay • Cost of new equipment ($12,000) • Net Salvage of old equipment 1,600 • (Market value of old equipment 1,000 • +Tax savings on sale of old equipment 600) • Increase in net working capital (1,000) • Total net investment ($11,400)

  14. Replacement Analysis • Depreciation Machine #1: 7500 / 15 = 500/year • Machine #1 Accumulated Depreciation = • 10 years x 500 = 5000 • 1) Book Value = original value - accumulated depreciation • 2500 = 7500 - 5000 • 2) Capital (Loss) = selling price - book value • (1500) = 1000 - 2500 • 3) Net Salvage Value After Tax • = selling price + tax savings from book loss • 1600 = 1000 + [ 40%(1500)]

  15. Buy Machine #2 • Before Taxes After Taxes • 1) Earnings 3000 1800 • 2) Tax savings • from depreciation • MACRS - 3 on 12,000 (new machine) • Year % $ • 1 33 3960 • 2 45 5400 • 3 15 1800 • 4 7 840 • 5 0 0 • Accum depreciation = 12,000

  16. Replacement Analysis Worksheet +

  17. Replacement Analysis • 5) Results • Payback period: 4.1 years • IRR: 10.1% versus an 11.5% cost of capital • MIRR: 10.7% versus an 11.5% cost of capital • NPV: -$388.77

  18. Capital Budgeting Illustration • I. Data on Proposed New Asset • MACRS class: 3-year • Economic life: 4 years • Price: $200,000 • Freight & installation: $40,000 • Salvage value: $25,000 • Effect on NWC: Increase inventories by $25,000 & • increase A/P by $5,000 • Revenues: $200,000/year (100,000 units at $2/unit) • Costs (excluding depreciation): 60% of sales • Tax rate: 40% • Cost of capital: 10%

  19. Capital Budgeting Illustration • II. Net Investment Outlay (t=0) • Price ($200,000) • Freight & Installation (40,000) • Increase in NWC (20,000) (25,000 - 5,000) • Net outlay ($260,000)

  20. Annual Cash Flows (in ‘000) • Year 0 1 2 3 4 • Total revenues $200.0 $200.0 $200.0 $200.0 • Operating costs • exclude depreciation (60%) 120.0 120.0 120.0 120.0 • Depreciation (next slide) 79.2 108.0 36.0 16.8 • Total costs $199.2 $228.0 $156.0 $136.8 • EBT $ 0.8 ($ 28.0) $ 44.0 $ 63.2 • Taxes (40%) 0.3 (11.2) 17.6 25.3 • Net income $ 0.5 ($ 16.8) $ 26.4 $ 37.9 • Depreciation 79.2 108.0 36.0 16.8 • Net operating cash flows $ 79.7 $ 91.2 $ 62.4 $ 54.7 • Equipment cost ($200) • Installation (40) • Increase in NWC (20) • Salvage value 25 • Tax on salvage value (10) • Return of NWC 20 • Net cash flows ($260.0) $ 79.7 $ 91.2 $ 62.4 $ 89.7 • NPV = -$4.0 < $0 Discuss effects of: • IRR = 9.3% < k Do not accept project. 1. Sunk costs • MIRR = 9.6% < k 2. Opportunity costs • Payback= 3.3 years 3. Externalities