EBS – Capital Budgeting: Cash Flow from A/Cs, Leasing, APV, EAC, International Projects Capital Budgeting This file covers; Extracting cash flows from a set of accounts (P&L and balance sheet), it looks at how to calculate the change in net working capital figure through a project. It shows a worked example of the above. It also looks at the choice between WACC/NPV and APV. Lease or Buy analysis Adjusted Present Value Equivalent Annual Cost Analysis Evaluating International projects Cash Flows from Accounting figures A company has a project that will have a life of three years after which all the assets would be liquidated. The fixed assets will be sold for £3,000 (all figures are in ‘000s) at the end of t3. The pro forma balance sheet and income statement are as follows: Rothko: Income statement t0 t1 t2 t3 Operating revenue Less returns Net operating revenue Operating expenses Operating profit 0 0 0 0 0 4800 0 4800 2250 2550 6150 90 6060 4050 2010 5550 300 5250 3750 1500 Sale of fixed assets 0 0 0 3000 Depreciation Interest at 10% 0 0 900 390 900 300 2700 240 Profit before tax Tax at 30% Profit after tax 0 0 0 1260 378 882 810 243 567 1560 468 1092 Revenues 1 EBS – Capital Budgeting: Cash Flow from A/Cs, Leasing, APV, EAC, International Projects t0 t1 t2 t3 1800 0 1500 3300 1800 1500 1950 5250 1800 1500 660 3960 0 450 0 450 3900 0 3900 7200 4500 900 3600 8850 4500 1800 2700 6660 4500 4500 0 450 0 0 900 900 2400 2400 450 450 Long term liabilities and equity Debt Equity: paid up equity capital Equity: retained earnings 3900 3300 0 3000 4470 480 2400 1860 0 0 0 0 Total long term liabilities & equity Total liabilities & equity 7200 7200 7950 8850 4260 6660 0 450 Rothko: Balance Sheet Current assets Cash & Marketable securities Accounts receivable Inventory Total current assets Fixed Assets Plant & equipment Accumulated depreciation Net Fixed Assets Total assets Current Liabilities Accounts

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