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Estimation of Project Cash Flows (in Hindi)
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Heena Malhotra
Believe in Conceptual Learning.

Unacademy user
sir idioms and ows v krwa dete sir mb publication se ....wo book nhi mil rhi....
mam Short trick bataye na.... kuch smjh m nhi aya???
mam plz explain again....
depreciation opportunity cost and working capital are considered as cash inflows and over head and additional capital investment as cash outflows. am i correct?
Heena Malhotra
9 months ago
Working capital at time of investmnt is outflow and at end of period is inflow, Opportunity cost is outflow. Bakki shi h :)
Jyoti Mishra
9 months ago
ok thankyou😊
  1. Capital Budgeting Decisions By Heena Malhotra


  2. o I. Estimation of Cash flows over the entire life o 2. Evaluate each of the alternative using o 3. Determining the minimum required rate of Steps of Capital Budgeting Procedure for each of the projects under consideration. different decision criteria. return (i.e. WACC) to be used as Discount rate. By Heena Malhotra


  3. ESTIMATION OF PROJECT CASH FLOWS o (a) Depreciation: Depreciation is a non-cash item and itself does not affect the cash flow. However, we must consider tax shield or benefit from depreciation in our analysis. Since this benefit reduces cash outflow for taxes it is considered as cash inflow. To understand how depreciation acts as tax shield let us consider following example: By Heena Malhotra


  4. No Depreciation Depreciation is Charged Crore) 30.00 25.00 5.00 1.50 3.50 1.05 2.45 1.50 3.95 * Being non- cash expenditure depreciation has been added back while calculating the is Charged Crore 30.00 25.00 5.00 Total Sales Less: Cost of Goods Sold Less: Depreciation Profit before tax Tax @ 30% Profit after Tax Add: Depreciation Cash Flow 5.00 1.50 3.50 3.50 cash flow By Heena Malhotra


  5. ESTIMATION OF PROJECT CASH FLOWS o (a) Depreciation: Depreciation is a non-cash item and itself does not affect the cash flow. However, we must consider tax shield or benefit from depreciation in our analysis. Since this benefit reduces cash outflow for taxes it is considered as cash inflow. o (b) Opportunity Cost: alternative cash inflow foregone due to acceptance of any project should be considered as opportunity cost and should be included in our analysiS By Heena Malhotra


  6. o (c) Sunk Cost Another potential problem relates to sunk cost. Sunk cost is an outlay that has already incurred and hence should be excluded from capital budgeting analysis. o For example, if a company has paid a sum of Rs. 1,00,000 for consultancy charges to a firm for the preparation of a Project Report for analysis to decide whether to take a particular project or not is irrelevant for analysis as sum has already been paid and shall not affect our decision whether project should be undertaken or not. By Heena Malhotra


  7. o (d) Working Capital Every big project requires working capital because, for every business, investment in working capital is must. Therefore, while evaluating the projects initial working capital requirement should be treated as cash outflow and at the end of the project its release should be treated as cash inflow. O It is important to note that no depreciation is provided on working capital though it might be possible that at the time of its release its value might have been reduced. Further there may be also a possibility that additional working capital may be required during the life of the project. In such cases the additional working capital required is treated as cash outflow at that period of time. Similarly, any reduction in working capital shall be treated as cash inflow. o It may be noted that, if nothing has been specifically mentioned for the release of working capital it is assumed that full amount has been realized at the end of the project. However, adjustment on account of increase or decrease in working capital needs to be incorporated. By Heena Malhotra


  8. o (e)Overheads it is expected that overhead cost shall be increased due to acceptance of any proposal then incremental overhead cost shall be treated as cash outflow o (f) Additional Capital Investment : It is not necessary that capital investment shall be required in the beginning of the project. t can also be required during the continuance of the project. In such cases it shall be treated as cash outflows. By Heena Malhotra


  9. Payback Period Traditional or Non Discounting ccounting Rat of Return (ARR) Capital Budgeting Techniques Net Present Value (NPV) Profitability Index (PI) Time adjusted or Discounted Cash Flows Internal Rate of Return (IRR) Modified Internal Rate of Return (MIRR) Discounted Payback By Heena Malhotra