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Review the financial considerations a company should make before investing in a project

Review the financial considerations a company should make before investing in a project

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Answer #1

1. Decisions should be based on cash flows, not accounting income.

1A - Return of project shoud be positive

a. Net present valur should be lositipo

b. Internal Rate of Return should be more then required rate of return.

2. Cash flows are based on opportunity cost - these are cash flows generated by an asset the firm already owns that would be forgone is the project under consideration is undertaken.

3.The timing of cash flow is important - means cash flow received earlier are worth more than cash flow to be received latter.

4.Cash flow are analyzed on an after tax basis - firm value is based on cash flows they get to keep, not those they send to government.

5.Financing cost are reflected in tge project's required rate of return - the discount rate are generally WACC which consider the impact of cost of debt.

Hope this will help you!

Good Luck!??

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