7a. Explain how the cash inflows and outflows forecast for use in a cash budget differ...

7a. Explain how the cash inflows and outflows forecast for use in a cash budget differ from those forecast for use in a capital budgeting analysis.

b. Explain how the purpose of the cash budget forecast differs and from that of the capital budgeting forecast, and why differences identified in part a are appropriate given the difference in purpose.

Expert Solution

a. Capital Budgeting is used in the event of a large investment where in the returns are expected over a number of years. Thereafter those returns are converted to their present values considering the appropriate cost of capital and their net present value is determined.

On the other hand, Cash inflows and outflows forecast can be for Revenue, Cost and other related income and expenses. Supposing we have to calculate net cash flows for the next five years, then we need to consider all sources of cash flows which emanate from Revenue, cost & other sources.

Capital Budgeting is used only in the event of investment whereas cash inflows & outflows forecast are used on a regular basis.

b. Cash Budgeting basically is an assessment of possible sources of cash inflows & outflows against company’s various Revenue & cost drivers to determine how much cash would be left with the company in near future.

ekkarill92 answered 1 year ago

Forecast the Net Present Value of a project given the cash inflows and cash outflows of...

Forecast the Net Present Value of a project given the cash inflows and cash outflows of the project. Then use this information to simulate the uncertainty of forecasting a project’s NPV. A likely scenario might be: Project A is a multi-year project; it begins on January 1, 2011 and is scheduled to end on December 31, 2014 (fixed cost is $215,000) The cash outflow for Project A is estimated at $100,000 at the beginning in the first year of the...

Prepare the cash budget and determine the cash inflows, cash outflows, and the expected change in...

Prepare the cash budget and determine the cash inflows, cash outflows, and the expected change in cash each month. The management estimates total sales for the period January, 2019 through June 2019 based on actual sales from the immediate past six months. The following assumptions are made:  The Sales were $125,000 in July 2018 and then the sales grew by 8% each month for the first three months (i.e., August to October 2018) and by 6% for the next...

Determine the total cash inflows, the total cash outflows, and the expected change in cash for...

Determine the total cash inflows, the total cash outflows, and the expected change in cash for each month from January to July, 2019. Show your work in excel using excel functions. Based the findings, explain in your own words whether the company should borrow/invest and how much and in which months. The management estimates total sales for the period January, 2019 through June 2019 based on actual sales from the immediate past six months. The following assumptions are made: The...

The calculation that expresses the ratio of net cash inflows to net cash outflows produced by...

The calculation that expresses the ratio of net cash inflows to net cash outflows produced by a financial contract is known as: Select one: a. net present value. b. net profit. c. internal rate of return. d. rate of return.

Listed below is a list of cash inflows and cash outflows for Toggle Inc. 1. Cash...

Listed below is a list of cash inflows and cash outflows for Toggle Inc. 1. Cash paid to employees for salaries 2. Cash from the sale of marketable securities 3. Cash used to pay dividends 4. Cash from the sale of services to customers 5. Cash paid to government agencies for taxes 6. Cash received from the sale of equipment 7. Cash received from issuing debt 8. Cash received from interest earned on a bond investment 9. Cash used to...

Classify cash inflows and outflows as relating to operating, investing, or financing activities.

10. Analyze the following cash inflows and cash outflows. Star Pharmaceuticals Statement of Cash Flows For...

10. Analyze the following cash inflows and cash outflows. Star Pharmaceuticals Statement of Cash Flows For the Years Ended December 31, 2015 and 2014 (in millions) 2015 2014 Cash flows from operating activities (CFO): Net income $5,800 $3,300 Adjustments to reconcile net income to CFO: Depreciation and amortization 550 360 Deferred income taxes 10 (580) Stock-based compensation 590 170 (Increase) decrease in operating assets and liabilities: Accounts receivable (490) (380) Inventories (6,900) (1,960) Other...

2) i: In analysing cash flows, where would you find inflows and outflows? ii: How is...

2) i: In analysing cash flows, where would you find inflows and outflows? ii: How is short term finance generally used? iii: What is an Asset-based Loan?

A company estimates the following net cash inflows and outflows for a capital investment project that...

A company estimates the following net cash inflows and outflows for a capital investment project that is currently under consideration. year Cash flow 0 (575,000) 1 45,800 2 99,000 3 104,300 4 118,700 5 130,400 6 129,000 7 116,500 8 77,200 9 55,000 10 12,500 Calculate the ARR and NPV of the project.

The operating activities section of the Statement of Cash Flows shows the inflows and outflows from...

The operating activities section of the Statement of Cash Flows shows the inflows and outflows from our day to day operations. Why is it that cash flows from operating activities does not equal net income? Is it possible for a company to have net income for the year and have a negative cash flow from operating activities in the same year? Why or why not?

Question