Description
Begin with the two project proposals submitted last week (and make any recommended changes if any given in the grading of the assignment). This week you will describe in detail the expected cash flows to be caused by the projects. Put another way you will describe in words your assumptions. After you complete your description in words, you will need to build an Excel spreadsheet illustrating the cash flows over the life of the project. Specifically, please do the following:
- Continuing in the Word document, in words and numbers, describe the cash inflows and outflows expected in the operating stage of this project’s life. Remember revenues, possible lost revenues, all the cost discussed in the course, whether these costs are fixed or variable and what relationships they have with the driver, assumed income tax rate, depreciation, and any other relevant inputs.
- Put together an Excel spreadsheet with the assumptions at the top of the sheet. Followed by the acquisition stage cash flows (remember to carryout and number years to year 8), the operating stage cash flows, the continuing or disposition stage cash flow, and conclude with a grand total of the cash flows for each year.
- Repeat step 7 and put together a second Excel spreadsheet for the second project
Below are two screencastify videos that illustrate the modeling of the cash flows one is for a project involving a building modification or equipment, and the other is for a project that involves a new menu item. These videos illustrate the thought process that you group should go through to arrive at the categories needed for the projects and additionally the logic used in using existing financial statements to estimate the dollar values across the years.
Estimating the cash flow for a project involving new equipment and/or building modification:
Estimating the cash flow for a project involving a new menu item:
Refer to the Capital Budgeting Proposal Project overview as needed.
