Cashflow Analysis by santiago cuevas melayes

Capital Budget

santi802015_ — 2024-02-07 03:24:34 UTC

Discuss how capital budgeting procedures might be used by each of the following:

a. Personnel managers To undertand what they can do and what projects are going to proceed in the future and how they can mannage the resources.

b. Research and development staffs: By giving the trends, trying to understand how the market and the demand will be in the future.

c. Advertising executives: To learn how they can mannage to communicate and increase the demand according to what the company can do.

Mutually exclusive/Independent/Contingent Projects

santi802015_ — 2024-02-07 03:40:27 UTC

Mutually exclusive are the projects in whose acceptance excludes one or more other alternatives. They have the capacity to perform the same function for a firm.
+When a company choose between Zoom or teams or google meets.
Independent projects accepting one or rejecting one does not eliminate directly other projects.
+A company when they want to buy new cars for the employees.
Contingent Projects are the ones that the acceptance is dependent on the adoption of one or more other projects.
+Companies that implement a new machine and they need to get a new software.

capital rationing in a firm?

santi802015_ — 2024-02-07 03:46:48 UTC

What effect does capital rationing have on a firm’s ability to maximize shareholder wealth?

Capital rationing is setting a limit on the capital expenditures, to avoid budgeting problems.

It affects by helping setting some limits on the capital expenditures so the budgeting is more realistic and less risky.

What are the primary types of capital investment projects? Does a project’s type influence how it is analyzed?

santi802015_ — 2024-02-07 03:59:23 UTC

Projects Generated by growth opportunities: When the demand is expected to grow in the upcoming years and the company has to acquire or do new projects.
Projects Generated by Cost reduction opportunity: Everything can become obsolete over time. This can create higher costs in the future, so this creates opportunities for cost reduction.
Project Generated to Meet legal requirements and health and safety standards: This project literally includes proposals for investment in requirements to reach certain standards or goals.

A project type influence on it is analyzed so companies know what the main goal of the project would be or how they can guide that project to reach their goals.

What factors should be considered when estimating a project’s NINV

santi802015_ — 2024-02-07 05:00:25 UTC

Net Investment the projects initial net cash outlay

The project cost + Any installation and shipping costs associated with acquiring the asset and puttin ginto service.

PLUS(+) aNY INCREASE IN NET WORKING CAPITAL

MINUS- The net proceeds from sales of existing assets.

PLUS or MINUS the taxes associated with the sales

7-8

santi802015_ — 2024-02-07 05:09:19 UTC

-Depreciation is a noncash expense; why is it considered when estimating a project’s net cash flows? Because it affects our values in our books, and it is deductible for tax purposes.

-What are the potential tax consequences of selling an old asset in an asset replacement investment decision? We can recapture from the depreciation and as ordinary income

9-10

santi802015_ — 2024-02-07 05:17:30 UTC

9.Why is it generally incorrect to consider interest charges when computing a project’s net cash flows? Because they can change and its al lan assumption.

10. Distinguish between asset expansion and asset replacement projects. How does this distinction affect the capital expenditure analysis process?

In the expansion the companies acquire more assets in order to grow or satisfy a demand that is bigger than what they can produce, this affects because this have to be included in the budget.

How is the opportunity cost concept used in the capital budgeting process?

santi802015_ — 2024-02-07 05:22:55 UTC

those are the cash flows those resources generate if they are not used in the project, it is used to see how de budgeting will be in different situations or projects.