Project Cash Flow Estimates And Calculations In Excel

Sheet1project Cash Flow Estimates And Calculations Exceldepreciationy

Sheet1 Project Cash Flow Estimates and Calculations Excel Depreciation: Year Basis MACRS % Dep Initial Cash Flow Price Sell OLD Freight -Book Value Installation Taxable Change NWC Tax Rate Sale Old Pump Tax Tax Old Pump Service Contract Other CF 0 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Savings per year -Service contract -Other -Depreciation Increased Taxable Income -Taxes Increased Net Income +Depreciation After-tax Cash Flow Salvage Value Tax on Salvage Value Recovery of NWC Terminal Cash Flow Project Cash Flow Payback Period Net Present Value Internal Rate of Return Modified IRR Profitability Index

Paper For Above instruction

The provided project financial analysis involves estimating cash flows and calculating key investment metrics based on Excel-based depreciation and cash flow models. The core purpose is to evaluate the economic viability of a project through detailed cash flow analysis, incorporating depreciation methods, tax implications, salvage values, and working capital considerations.

Initial capital outlay, including purchase price, freight, installation, and other initial costs, establish the starting point for the cash flow model. Depreciation calculations primarily employ the Modified Accelerated Cost Recovery System (MACRS) over a year basis, resulting in depreciation percentages applied to the initial investment. These depreciation values influence taxable income, taxes, and consequently, net cash flows.

The project generates annual savings, such as from service contracts, operational efficiencies, or other cost reductions, which feed into increased taxable income. Taxable income adjustments include depreciation deductions, which reduce taxes, leading to increased net income and higher after-tax cash flows. This cycle continues over multiple years, typically nine in this model, with adjustments for changes in net working capital (NWC) and salvage values at project termination.

Salvage value, derived from sale price minus tax obligations on the sale, combined with the recovery of NWC, forms the terminal cash flow that occurs at the project's conclusion. These final cash flows are crucial for calculating metrics such as Net Present Value (NPV), Internal Rate of Return (IRR), Modified Internal Rate of Return (MIRR), and Profitability Index (PI).

Evaluation begins with calculating the payback period, which determines the time needed for cumulative cash flows to offset initial investment. Discounted cash flows are used to compute NPV, considering a specified discount rate, to quantify the project's value in present terms. IRR and MIRR are derived from iterative methods or financial calculator functions, providing rate-based measures of project profitability. The PI offers a ratio of present value of inflows to outflows, assisting in comparative analysis.

Overall, this project cash flow model allows decision-makers to analyze financial viability comprehensively, accounting for depreciation implications, tax effects, salvage value, working capital changes, and investment return measures, ensuring informed capital budgeting decisions.

References

  • Brigham, E. F., & Houston, J. F. (2019). Fundamentals of Financial Management. Cengage Learning.
  • Damodaran, A. (2012). Investment Valuation: Tools and Techniques for Determining the Value of Any Asset. Wiley.
  • Graham, J. R., & Harvey, C. R. (2001). The Theory and Practice of Corporate Finance: Evidence from the Field. Journal of Financial Economics, 60(2-3), 187-243.
  • Ross, S. A., Westerfield, R. W., & Jaffe, J. (2021). Corporate Finance (12th Edition). McGraw-Hill Education.
  • Higgins, R. C. (2012). Analysis for Financial Management. McGraw-Hill Education.
  • Hopwood, W. S., Booth, P., & Fess, P. E. (2010). Intermediate Accounting: Reporting and Analysis. McGraw-Hill.
  • Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2018). Financial Accounting. Wiley.
  • Kelchner, L. (2018). Capital Budgeting and Investment Analysis. Harvard Business Review Analytic Services.
  • Dechow, P. M., & Dichev, D. (2002). The Quality of Accruals and Earnings: The Role of Accruals in Earnings Management. The Accounting Review, 77(s-1), 35-59.
  • Penman, S. H. (2012). Financial Statement Analysis and Security Valuation. McGraw-Hill Education.

Related Assignments