Your boss is very puzzled by the finance courses in his MBA program. He has learned that “cash flow is king,” but notices that the capital budgeting problems spend a lot of time and effort dealing with depreciation and CCA but not with interest expenses. He knows that depreciation and CCA are non-cash expenses, and he knows that interest is definitely a cash expense. He would like an explanation of why he needs to bother with depreciation and CCA and not with interest expense.
Answer to relevant QuestionsAn investor has observed that BathGate Company, a shareholder wealth-maximizing company, has just made an investment that appears to have a negative NPV. The investor is very puzzled about why a company would undertake a ...Complete the following table. Assume that the asset class is left open, and/or the salvage value is less than the UCC for the entireclass.KRZ Company has hired you to help evaluate several projects. The firm’s tax rate is 40 percent and the appropriate discount rate is 10 percent. Each asset class is small and will be terminated at the end of each project. ...Brigid Co. has the following potential project: Machine price = $1,600,000; additional inventory requirement = $50,000. Cash flows will be generated at year end. Rev1 = $250,000 and grows at 5 percent each year for five ...a. Describe how CCA expenses change through the life of a project.b. Given C0 = $250,000; CCA rate = 0.2%; tax rate = 40%; and year 2 operating income = $150,000, calculate the cash flow in year 2.
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