PPT Introduction to Risk and Return PowerPoint presentation
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Introduction to Risk and Return
Cash flows from operations =revenue cost (cash expenses) tax payment. Method 2. Turbo Charged Seafood has the following % returns on its stock, relative to the. PowerPoint PPT presentation
Title: Introduction to Risk and Return
Introduction to Risk and Return
- Where does the discount rate come from?
Todays plan
- Review of what we have learned in the last
lecture
What have we learned in the last lecture?
- Other two investment rules
- IRR
- Payback period rule
- Pay attention to
- Depreciation
- Financing
- Incremental cash flows and opportunity cost
- Free cash flows or cash flows in finance
- Cash flows from operations
- Cash flows from the change of working capital
- Cash flows from capital investment and disposal
How to calculate cash flows from operations?
- Method 1
- Cash flows from operations revenue cost (cash
expenses) tax payment
depreciation
cost)(1-tax rate) depreciation tax rate
Example
- revenue 1,000
- Cost 600
- Depreciation 200
- Profit before tax 200
- Tax at 35 70
- Net income 130
Given information above, please use three methods
to calculate Cash flows
Solution
- Method 1
- Cash flows1000-600-70330
- Method 2
- Cash flows 130200330
- Method 3
- Cash flows (1000-600)(1-0.35)2000.35
- 330
A summary example ( Blooper)
- Now we can apply what we have learned about how
to calculate cash flows to the Blooper example,
whose information is given in the following slide.
Cash flows from operations for the first year
or 3,950,000
Blooper Industries
- Net Cash Flow (entire project) (,000s)
NPV _at_ 12 3,564,000
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