Muhammad Waqar

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 Cash flow forecast
• A cash flow forecast is a plan that shows how much money a
business expects to receive in, and pay out, over a given period of
time.
 Cash flow forecast
• Need to forecast the expenditure and the income.
• Accurate forecast is not easy.
• Need to revise the forecast from time to time.
 Cost-Benefit Evaluation Techniques
• It consider:
The timing of the costs and benefits.
Benefits relative to the size of investment.

• Techniques
• Net profit
• Payback period
• Return on investment
• Net present value
• Internal rate of return
 (1) Net profit

• Net profit calculated by subtracting a company's total expenses from

total income.
• showing what the company has earned (or lost)
• in a given period of time (usually one year). also called net income or
net earnings.
•Net profit= total incomes - total costs.
Net profit
 (2) Payback period

• The payback period is the time taken to recover the initial investment.
• Pros
• Easy to calculate.
• Gives some idea of cash flow impact.
• Cons:
• Ignores overall profitability
 (3) Return on investment

• It provides a way of comparing the net profitability to the investment

required.

average annual profit

 100%
total investment

• Disadvantages
• It takes no account of the timing of the cash flows.
• Rate of returns bears no relationship to the interest rates offered or changed by
bank.
Return on investment
 (4) Net Present Value

• A technique that takes into account the profitability of a project and

the timing of the cash flows that are produced.
• Present value: is the value which a future amount is worth at present.
• Rationale: $100 is better now than next year.
• Discount rate: is the annual rate by which we discount future earning
• e.g. If discount rate is 10% and the return of an investment in a year is $110,
the present value of the investment is $100.
(4) Net Present Value
(5) Internal rate of return
 Internal rate of return

• Pros
• Calculates figure which is easily comparable to
interest rates
• Cons: Difficult to calculate (iterative)
 Risk evaluation

• Every project involves risk of some form. When assessing and

planning a project, we are concerned with the risk of the
project's not meeting its objectives.