[PRCPA]

I sit tomorow and I have few doubts in NPV and Cash flow … I hope you understand the question, because my in english is a lillte bad 80/.

1. What happen when I decrease working capital in the inception of the project????

Decrease Initial Cash outflow?

This affect depreciation??

Effects of WC at the end of the Invesment( Inflow or outflow)? Is net of Tax?

Ex. $100,000 Investment cost, 5 years depreciation. cash flow per year $100,000 for 5 years. Decreases in working capital $10,000,Tax rate 40%

A. My proyect inception outflow is $90,000($100,000 invesment -$10,000 Decreases in WC).

B I think this: WC has no effect in base for depreciation. Depreciation per year us $20,000.

Tax shield is $8,000. So my cash flow is $100,000 x.60=$60,000plus tax shield $8,000=$68,000. Then if I need, I used table for NPV.

C. What it the cash flow in year 5 with this number?

(a) $100,000 Investment cost, with life of 5 year. Cash flow per year $100,000. Decreases in working capital $10,000,Tax rate 40%. Resale value in year 5 $10,000.

2. What happen when I have a cost in one year, and paid taxes???

Ex. Year 2, Cash Inflow $100,000, Cash Outflow $10,000, tax tare 40% Depreciation $20,000.

A. I think this: So, my cash inflow is $90,000($100-$10). My net cash flow is $62,000 {$54,000 ($90,000x.60)+ $8,000(20,000 x.40)}. The net expense is $6,000 ($10,000 x.60)

3. What happen when I sale the old asset and creates a gain or lose, and use in the invesment? Is net of tax? Affect depreciation>???

Please Helpppppppppppppppppppppppppppppppppppp 80/

[MCLKT]

Sorry, I'm just starting my BEC studies.

I'm bumping this post to help get a response from other BEC ninjas 🙂

Good luck on your exam!!!

A:[73]97 F:[74]85 R:86 B:[74]82
*NINJA 10 Pt. COMBO & Yaeger*

[PRCPA]

@MCLKT Thanks!, I hope so 80/.

[Anonymous]

Yea, you should probably just cut & paste the actual question verbatim. That way you'll actually get a response cuz it's hard to read your post. BTW, if you're asking if working capital affects depreciation, the obvious answer is no. It's logic: WC is current assets/liabilities. Last time I checked, PP&E, A/D, & Depr. exp. weren't working capital.

[J]

Use this formula to help you solve questions regarding net cash flows (courtesy of the great Cindy Simpson, of course):

Cash Flows, gross

-Depreciation Expense

=Income before Income Tax

-Income Tax Expense

=Net Income

+Depreciation Expense

=Cash Flows, net

I still remember it from my BEC time and it works wonders.

[Author]

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