MGT 181 Chapter 10

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4 Terms

1

what are relevant cash flows

The cash flows that should be included in a capital budgeting analysis are those that will only occur (or not occur) if the project is accepted

  • incremental cash flows

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2

Erosion or cannibalism

when the demand for one product eats into the demand for another project

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3

Pro Forma

Financial statements projecting future years’ operations

cash flow from assets = OCF - net capital spending - changes in net working capital

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4

Depreciation

a non-cash deductible and has cash flow consequences only because it influences the tax bill

  • straight line depreciation: D = (initial cost - salvage) / number of years

  • MACRS: multiply percentage given in table by the initial cost

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