The Portable MBA in Finance and Accounting, 3rd Edition

288 Planning and Forecasting plan are the income statement, cash f low statement, and balance sheet. I typi- cally call for five ...

The Business Plan 289 Common inclusions would be one-page resumes of key team members, articles that feature your venture, and t ...

290 Planning and Forecasting INTERNET LINKS Business Plan Sites http://www.pasware.com http://www.brs-inc.com http://www.jian.co ...

291 10 PLANNING CAPITAL EXPENDITURE Steven P. Feinstein A beer company is considering building a new brewery. An airline is deci ...

292 Planning and Forecasting decision rule. The perspective of financial analysis is that capital investment belongs to the inve ...

Planning Capital Expenditure 293 expected life of the new brewery is 10 years. The brewery will be depreciated to zero over its ...

294 Planning and Forecasting Cash Flows in Later Years We find cash f low in years 1 through 10 by applying the following formul ...

Planning Capital Expenditure 295 Treatment of Net Working Capital Changes in inventory, accounts receivable, and accounts payabl ...

296 Planning and Forecasting $1.5 million at the end of 10 years. By then, however, the book value of the brewery will be zero. ...

Planning Capital Expenditure 297 Putting the Pieces Together to Forecast Cash Flow We now have all the puzzle pieces to construc ...

298 Planning and Forecasting later. Since the cash f low is deferred, the true value of that sale to the firm is somewhat dimini ...

Planning Capital Expenditure 299 Sunk Costs Sunk costs are expenses that have already been paid or have already been com- mitted ...

300 Planning and Forecasting The concept that future cash f lows have a lower present value and the set of tools used to discoun ...

Planning Capital Expenditure 301 was forecast to generate $2.42 million of cash in year 1. The present value of that cash f low, ...

302 Planning and Forecasting MORE NPV EXAMPLES Consider two alternative projects, A and B. They both cost $1,000,000 to set up. ...

Planning Capital Expenditure 303 the project covers all its costs and provides additional returns. If accepting the small-NPV pr ...

304 Planning and Forecasting where REis the return on the stock and also the cost of equity financing, Dis the dollar amount of ...

Planning Capital Expenditure 305 resulting number, the “weighted average cost of capital” (WACC), ref lects the firm’s true cost ...

306 Planning and Forecasting Earnings before interest and taxes (EBIT) is thus $450,000 for both companies in good times, and $5 ...

Planning Capital Expenditure 307 and most important lesson to be learned about leverage from this example: For the equity invest ...