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Flashcards in Week 12 - Workshop Questions Deck (13)
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1

What Value should be recorded as the initial cost of a project for the use of land?

Only the valuation of the land should be recorded

2

How much of future sales (next year), should be recorded as a side effect of the introduction of a new product?

Only the SIDE EFFECT of sales should be included (the increase of sales to existing products). Do not include the sales of the new product itself.

3

What happens to inventory, accounts payable and accounts receivable at the start of a project?

Inventory - Increases (Buy stock)
Accounts payable - Increases (Borrow cash)
Accounts receivable - Decreases (Collect debt owed to you)

4

What happens to inventory, accounts payable and accounts receivable at the end of a project?

Inventory - Decreases (Sale of stock)
Accounts Payable - Decreases (Pay back money owed by you)
Accounts Receivable - Increases

5

What is the formula for ‘Incremental cash flows’? And What should be considered in the calculation of ‘Incremental Cash Flows’?

ICF = Revenues - Expenses - Initial cost

6

When calculating the ‘Net Present Value’ of a project, How is Net Income calculated?

Sales
COGS
Gross profit
Depreciation charge
EBIT
Tax
Net Income

7

When calculating the Net Present value of a project, How is Free Cash Flow calculated?

Operating Cash flow (Gross profit less Tax)
Capital Expenditure (Initial Cost)
Change in Net Working Capital ( Increase or decrease needed year on year)
Free cash flow (OCF - Cap.Expenditure - Change in NWC)

8

How is the ‘continuation valuation’ used in the calculation of the NVP of a project?

The continuation valuation is added to the last year cash flow and discounted at the appropriate rate.

9

What is the NWC formula?

Cash + inventory + Accounts receivable - Accounts Payable

10

What are the things to consider when working out the FCF at the end of a project?

- Do you receive the NWC back?
- Is there a return on capital expense? This sale needs to be discounted for tax
- Is the opportunity cost recovered?

11

Under What circumstances is ‘deprecation’ added or not when calculating FCF?

Added when: FCF is being calculated from net income (Depreciation has been deducted)

Not Added when: FCF is being calculated from OFC

12

If FCF is being calculated from OCF, is depreciation added or not?

When calculating FCF from OCF depreciation is not added

13

When FCF is being calculated from Net Income, depreciation is...

When FCF is being calculated from Net income, depreciation is added