Session 10: Objective 1 – Project Cash Flows (A First Look)

the operating cash flow for a project should exclude which one of the following? This is a topic that many people are looking for. star-trek-voyager.net is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, star-trek-voyager.net would like to introduce to you Session 10: Objective 1 – Project Cash Flows (A First Look). Following along are instructions in the video below:

“To corporate finance. Welcome to session 10 of introduction and corporate finance on making capital capital investment decisions and today. I have with me a sample of one of the popular supposedly supposed to be popular highest npv projects in us history. And that is cotton l.

Fresh roll wipes made by kimberly clark. This was launched as a potential blockbuster product an article appeared in the wall street journal touting this cotton l. Fresh worldwide product saying that we spent thirty five million dollars on it in marketing and one hundred million dollars in r. D.

And had thirty some patents. It was a surefire positive npv project supposed to generate on the order of hundred fifty million dollars in sales in the first year. Jay leno. Had it on the show wall street journal touted it in its april of o.

Two edition. April 15th tax day of 2002. So this was supposed to be a big launch and a revolutionary product. They said the most fundamental change in the toilet paper market since it was first brought out in 1890 and everyone would have this in their house.

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Well. I must probably say that this is one of the few that i found in america. There are none of these around try and find it go shopping and try and find this product on any of your store shelves to go very. Difficult to find i found this in josh costa supermarket up in smith port being covered in dust in around 2005.

It was like an archaeological dig trying to find this thing. Yet. It was supposed to be the most positive npv project. Mankind had ever seen one of the most positive npv projects.

So we must be careful with our assumptions and our cash flows and today. We want to discuss how do we make good decisions. Once. Again.

How we calculate relevant cash flows and incremental cash flows and some key equations. I need to know that will be repeated from earlier chapter. So we re building on some of these concepts we ve seen earlier. What is the cash flow from assets on this project.

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See ff a equals o cf minus ncs minus c. Nw. See we learn that in chapter. Two and went it over it again in chapter.

Three and in some ways to calculate ocf and again in chapter. Two we went over this in chapter three o cf is equal to e bi t. Plus d. Minus t.

s all you really need is an income statement to calculate the operating cash flow on these major capital investments and we want to see again since assets to find the company. What are some good ways what kind of cash flows. Do we have to look at that s going to be that are going to be generated from these assets that we re buying with these major capital investments and we ll kind of care do we have to take to make sure we don t make disastrous decisions. Like this one so five learning objectives in this session.

First look at project. Cash flows. What do we look for when we re calculating these cash flows. And what do we include and not include we want to look at two incremental cash flows.

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What do we mean when we say incremental cash flows. That we ll be learning objective. Number. Two and how do we build pro forma financial statements.

What do we mean by pro formas to me that means five years of actuals and five years of projections. If we have a company that s in existence. But in some cases on a new project. It may just be five years of projections.

But when we say pro forma it means for a matter of form and we re talking about an income statement form a balance sheet form and a cash flow. Those are the three we must produce whenever we have one of these major investment projects. What are some alternate definitions of cash flow are the upper ocf are there other ways to calculate other than ebit plus d. Minus t.

And answer is yes there are generally four methods to calculate oc f. And finally what are some special cases of dcf analysis. What are some special cases in which we can use this that are kind of non traditional. So first of all we the effect of taking on a project like cotton l.

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Fresh roll wipes is to change the firm s overall cash flows in a positive way today and in the future. We want positive cash flows. Obviously and we want to see if this project will add value truly add value to the farm. So i m going to look at relevant cash flows ralphing cash flow is one that comes about as direct consequence of taking on the project.

And i want to look at incremental cash flows. Look at these projects as a standalone project. Okay standalone project. Remember that and only the incremental cash flows that affect the company as direct consequence of taking on the project.

So. The standalone principle is very very important. It is the assumption that this project is based on evaluation of the project is based on their projects. Incremental cash flows on a standalone mini firm basis to treat any of these projects is if there are standalone mini firm do not caution do not have these projects into the general income statement balance sheet and cash flow of your existing operations keep them.

The same keep them separate from the rest of ” ..

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