Introduction to Financial Management

Selection decisions concerning proposed projects (for investment in long-term assets)

and (2) replacement decisions.

Many other decisions affect the company’s cash flows:

Choice of distribution channel

Purchases of buildings

Choice of geographical location

Purchase of another company or sale of a division

Leasing or buying a certain piece of equipment

Reducing dividend payments in order to pay down bank debt

The difficulty with making these decisions is that typically, many cash flows are

affected, and they usually extend over a long period. Investment appraisal criteria help

us in analyzing capital budgeting decisions by aggregating the multitude of cash flows

into one number.

o Measuring cash flows
Incremental (or relevant) after tax cash flows that occur with an investment project are
the ones that are measured.

Cash flows of project categories are: (1) the initial investment (2) the incremental

(relevant) cash flows over the life of the project and (3) the terminal cash flow.

However, from SLICOM’s perspectives a project is worthy if it carters for the well-

being and sustainability of the target group (Insurers and policyholders) within the

appropriate implementation period and funds. The implementation of the motor

Insurance Sticker, and Marine and Aviation tag viewed as a project with its impact on

the Insurers, Policyholders and the Government. This in turn changes cash flow of all

stakeholders.

Consequently, Cash flow is the most important variables to investors, because it cannot

be manipulated by discretionary accounting treatments such as depreciation methods or

inventory valuation. Note that cash flow projections require an integrated team effort