Calculating Cash Flows For
Projects
Manoj Aryan
Basic Format For Determining Initial Cash
Outflows
(a) 00 Cost of new asset(s)
(b) + Capitalized expenditures(for example, installation costs, shipping expenses etc.)*
(c) +(-) Increased (decreased) level of “net” working capital**
(d) - Net proceeds from the sale of “old” asset(s) if the investment is a replacement decision
(e) + (-) Taxes (tax savings) due to the sale of “old” asset(s) if the investment is a replacement decision
(f) = Initial cash outflow
* Asset cost plus capitalized expenditures from the basis on which tax depreciation is computed.
** Any change in working capital should be considered “net” of any spontaneous changes in current liabilities that occur
because the project is implemented….
By: Manoj Aryan
Determining interim incremental net cash
flow (per period)
(a) Net increase (decrease) in operating revenue less (plus) any net increase (decrease) in opening
expenses, excluding depreciation
(b) - (+) Net increase (decrease) in tax depreciation charges
(c) = Net charges in income before taxes
(d) - (+) Net increase (decrease) in taxes
(e) = Net change in income after taxes
(f) + (-) Net increase (decrease) in tax depreciation charges
(g) = Incremental net cash flow for the period
By: Manoj Aryan
Determining terminal year incremental net
cash flow
(a) Net income increase (decrease) in operating revenue less (plus) any net increase (decrease) in
operating expenses, excluding depreciation
(b) - (+) Net increase (decrease) In tax depreciation charges
(c) = Net change in income before taxes
(d) - (+) Net increase (decrease) in taxes
(e) = Net change in income after taxes
(f) + (-) Net increase (decrease) in tax depreciation charges
(g) = Incremental cash flow for the terminal year before project windup considerations
(h) + (-) Final salvage value (disposal/reclamation costs) of “new” asset(s)
(i) +(-) Taxes (tax savings) due to sale or disposal of “new’ asset(s)
(j) +(-) Decrease (increased) level of “net” working capital*
(k) = Terminal year incremental net cash flow
* Any change in working capital should be considered “net” of any spontaneous changes in current liabilities that occur because
the project is terminated.
