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Cash flows

You are evaluating a capital budget analysis by one of the operating divisions that list the following cash flows in their analysis. Based on incremental cash flows, your evaluation finds some are not relevant. Discuss each of the five cash flows as to its relevancy and if it should be included in the analysis or excluded.

1. Productivity will increase in unit production. Employees can produce the same output in 90% of the time previously. Due to capacity constraints, additional output is not planned.

2. The project was initiated to replace unusable machinery, which initially cost $125,000.

3. Additional factory space is required. Current unused space is available. The cost center for space is $15 per foot.

4. Overtime costs for certain shifts can be eliminated with the project.

5. Production savings is anticipated at $0.38 per unit produce.

Solution Preview

You are evaluating a capital budget analysis by one of the operating divisions that list the following cash flows in their analysis. Based on incremental cash flows, your evaluation finds some are not relevant. Discuss each of the five cash flows as to its relevancy and if it should be included in the analysis or excluded.

1. Productivity will increase in unit production. Employees can produce the same output in 90% of the time previously. Due to capacity constraints, additional output is not planned.

2. The project was initiated to replace unusable machinery, which initially cost $125,000.

3. Additional factory space is required. Current unused space is available. The cost center for space is $15 per foot.

4. Overtime costs for certain shifts can be eliminated with the project.

5. Production savings is anticipated ...

Solution Summary

Response discusses cash flows

$2.19