The Essentials of Financial Analysis

CHAPTER TENDETERMINING CASH FLOWS

Projected cash flows form the foundation for all the investment analysis techniques and applications. Determining projected cash flows is one of the most important steps in the capital investment analysis process. In practice, when evaluating investment proposals, discussions about the derivation of assumptions and the resulting cash flows dominate reports and presentations. Reasonable assumptions that are realized when the project is implemented assure the organization that the project will enhance shareholder value to the level of the projected net present value. Unrealistic, aggressive assumptions make the project look significantly better in the analysis phase. However, when the project is implemented and ...