(Cost of equipment + Shipping & Installation Expense – Expected salvage

Dealing with Dep.Exp

value) ÷ (Life of the equipment)

Increase in AR + Increase in Inv - Increase in AP Dealing with Working Capital Only additional cash flow
resulted from the new project
Adding salvage value Dealing with Capex

Ignore sunk cost

Becareful with Inflation

New : More revenue Forecasting Project Cash Flow Identifying Incremental Cash Flow
Include Opportunity Cost

Cost of fixed assets ;

Shipping and installation
expense ; Investment in
Include Side Effect/Synergistic
net working capital ; Sale
of old equipment ; Tax Effect. Positive (Volume
implications from sale of Initial Outlay New Invesment OR Replacement? Discount from Suppliers).
old equipment Negative (Cannibalisation of
Replacement : principal source of cash flows comes from cost
Demand)
Gain savings,
Tax Subject Old asset sale not new revenues.
Loss Exclude Financing Cost
Dep.Exp

Working Capital Annual Cash Flow

Capital Spending