Financial Management: Core Concepts, Third Edition

10.5 Projected Cash Flow For a New Product

It is now time to put together all this cash flow knowledge and estimate the appropriate anticipated cash flow for our project in terms of both amount and timing of the incremental cash flow. We must use these elements when making a decision with the capital budgeting models: payback period, discounted payback period, net present value, internal rate of return, modified internal rate of return, and profitability index. Let’s return to Cogswell Cola’s flavored-cola project and estimate its incremental cash flow.

1. Determine the initial capital investment for the project. To start the process of identifying cash flow, begin with the required capital expenditure to start the project. In the case of Pulsar ...