Chapter Fourteen: Cash Flow Estimation and Capital Budgeting Decisions
Equation
Formula
Pa
[14-1]
Initial Cash Outlay
CF
0
=
C
0
+ Δ
NWC
0
+
OC
p.
[14-2]
Annual After-Tax Cash
Flows
CF
t
=
CFBT
t
(1 −
Τ
) +
CCA
t
(
T
)
p.
[14-3]
Ending Cash Flow
(with tax implications)
ECF (with tax implications)
n
=
SV
n
+ Δ
NWC
n
− [(
SV
n
− C
0
) ×
T
] −
[(
SV
n
−
UCC
n
) ×
T
]
p.
[14-4]
Ending Cash Flow
(ignoring tax
implications)
ECF
n
=
SV
n
+ Δ
NWC
n
p.
[14-5]
Net Present Value
NPV
=
PV
(
Annual CFs
) +
PV
(
ECF
n
) −
CF
0
p.
[14-6]
Present Value of
Operating Cash Flows
n
1
1-
1+k
PV OperatingCash Flows =CFBT 1-T ×
k
p.
[14-7]
Present Value of CCA
Tax Shield (ignoring
CCA Recapture and
Terminal Loss)
0
n
n
C
d
T
1+0.5k
SV
d
T
1
PV CCATaxShield =
×
-
×
d+k
1+k
d+k
1+k
p.
[14-8]
Present Value of CCA
Tax Shield (accounting
for CCA Recapture or
Terminal Loss)
0
n
n
n
n
n
C
d
T
1+0.5k
UCC
d
T
SV -UCC
T
1
PV CCATaxShield =
×
-
×
-
d+k
1+k
d+k
1+k
1+k
p.
[14-9]
Present Value of Capital
Gains Taxes Paid
n
0
n
SV -C
T
PV CapitalGainsTaxesPaid =
1+k
p.
[14-10]
Net Present Value
(Components)
NPV
=
PV(Operating CFs)
+
PV(CCA Tax Shield)
+
PV(ECF
n
)
−
PV (Capital Gains Taxes Paid)
−
CF
0
p.
