Capital spending cash flows
To calculate NPV of an investment, in the capital expenditure cash flow part. If the equipment is worth a million and 80% is financed do we include all of the million as an outflow in the 1st year as a capital expenditure or we are just supposed to get the non financed bit into the cash flow.
Any help would be appreciated
Hey, You have to always deal with the investing and financing parts separately.
CFassets = CFshareholders + CFcreditors + changes in cash CFcreditors = paid interest - net new borrowing Net capital spending = Net Fixed Assets(end) - Net Fixed Assets(beginning) + Depreciation
Since the last formula there doesn't include anything about how it's financed, you include the whole million. It will balance when you put the financed part in the net new borrowing part. Hope that helps. cheers
We're Italian, "WACC" means something else to us.
i know we dont mix up investing and financing. But the asset is worth 1 million and its 80% on loan. So in my capital spending should be what. its a new project.. and i am confused over the year 0 capital spending... If i include 100% project cost i get real life npv and irr otherwise ir is like 129% thats unreal.
To make things clear. 1 million project 80% on loan.. so assumed cash is 200000. but i have heard that in capital spending you include total project cost in year 0.
Regards
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