Question

What is (are) the most important cash flow(s) in a capital budgeting analysis? Why?

What is (are) the most important cash flow(s) in a capital budgeting analysis? Why?

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Answer #1

Capital Budgeting analysis is analysis about investment in long term project that require huge amount of investment. All the capital budgeting is based on the cash flow inflow and outflow during period of project. In the capital budgeting future cash flow is discounted to determine present value of future cash flow and care compare present value of future cash flow with cash out flow at beginning of the period. If present value of future cash flow is more than cash outflow then only project is accepted else project is rejected.

Most important cash flows to consider is capital budgeing is mention below:

1. Initial Capital investment that includes equipment purchase, shipping and installation cost, working capital investment.

2. Future cash inflow from project

3. After tax salvage value.

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