Activity 3: Discussion of incremental cash ?ows [20 min] Break out into groups of 4?5 and consider
Question:
Activity 3: Discussion of incremental cash ?ows [20 min] Break out into groups of 4?5 and consider one of the following scenarios: Scenario 1: Apple just released the new iPhone 15. Imagine your group had been part of the management team that sat in a conference room 18 months ago and was tasked to weigh the ?nancial costs and bene?ts of bringing to market the new model for the company. Scenario 2: In 2019, Rio Tinto started work on developing a new iron ore mine at Gudai-Darri some 1500 km away from Perth. Imagine your group had been part of the management team that sat in a conference room a few year prior to that date working through the details of the massive upfront investment to make the mine operational as well as faciliating the subsequent production that started in 2022 and is expected to go on for 40 years. 01: Define the boundaries of the project. What is part of the project, what is part of the existing company? What broad stepsfactivities are involved in this project over the lifetime of the project? 02: Systematically work through the different stages of the project. For each stage, work out the different types of incremental cash flows that will likely arise and brie?y describe them. No calculations or numbers are required, but be diligent in thinking through: a) what initial costs are involved and b) what types of effects on the rest of the company can arise from these projects. [15 min] Groups report their ?ndings to the rest of the class. Do not try to discuss every single ICF you identified. Focus on a few that you found interesting or challenging. Cash flows in a typical project The diagram shows some typical cash flows in project analysis and their timing. Initial outlay Ongoing cash flows Terminal cash flows , Purchase Incremental equipment revenue , Initial development Incremental costs costs Taxes Increase in net working Change in net working Decrease in net working capital (increase capital (Change in capital (decrease inventories, raw inventories, raw inventories, raw materials, etc.) materials, accounts materials, etc.) receivable and payable) Sale of equipment (net of any taxes) Shutdown costs r _/_J
Auditing Cases An Interactive Learning Approach
ISBN: 978-0132423502
4th Edition
Authors: Steven M Glover, Douglas F Prawitt