The reason to focus on cash flow instead of net income in capital budgeting. Introduction: Operating Cash Flow: The amount of cash used in or generated from the operations of the business is reported under the category of operating cash flow in the statement of cash flow. This is prepared as a part of financial statement at the end of an accounting period. The net balance is calculated and depicted as net cash from operating activities.

Question

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Answer 1

Question

Chapter 12, Problem 1Q

Summary Introduction

To explain: The reason to focus on cash flow instead of net income in capital budgeting.

Introduction:

Operating Cash Flow:

The amount of cash used in or generated from the operations of the business is reported under the category of operating cash flow in the statement of cash flow. This is prepared as a part of financial statement at the end of an accounting period. The net balance is calculated and depicted as net cash from operating activities.

Expert Solution & Answer

Answer to Problem 1Q

Cash flow is used instead of accounting income because actual cash is required and spent for the projects or expansion plans of a company.

Explanation of Solution

The capital budgeting is a process to estimate the cash generated and used from a project or new plant.
The net income is just a measure of profitability and doesn’t reflect the actual cash that is available for investment.

Conclusion

So, the reason to consider cash flow is that actual cash is required and spent for the projects or expansion plans of a company.

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(d) Estimate the value of a share of Cisco common stock using the discounted cash flow (DCF) model as of July 27, 2019 using the following assumptions Assumptions Discount rate (WACC) Common shares outstanding 7.60% 5,029.00 million Net nonoperating obligations (NNO) $(8,747) million NNO is negative, which means that Cisco has net nonoperating investments CSCO ($ millions) DCF Model Reported 2019 Forecast Horizon 2020 Est. 2021 Est. 2022 Est. 2023 Est. Terminal Period Increase in NOA FCFF (NOPAT - Increase in NOA) $ 1241 1303 1368 10673 11207 11767 1437 $ 12354 302 ✓ Present value of horizon FCFF 9918 9679 9445 ✔ 0 × Cum. present value of horizon FCFF $ 0 × Present value of terminal FCFF 0 ☑ Total firm value 0 ☑ NNO -8747 ✓ Firm equity value $ 0 ☑ Shares outstanding (millions) 5029 Stock price per share $ 40.05

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Answer 2

Question

Chapter 12, Problem 1Q

Summary Introduction

To explain: The reason to focus on cash flow instead of net income in capital budgeting.

Introduction:

Operating Cash Flow:

The amount of cash used in or generated from the operations of the business is reported under the category of operating cash flow in the statement of cash flow. This is prepared as a part of financial statement at the end of an accounting period. The net balance is calculated and depicted as net cash from operating activities.

Expert Solution & Answer

Answer to Problem 1Q

Cash flow is used instead of accounting income because actual cash is required and spent for the projects or expansion plans of a company.

Explanation of Solution

The capital budgeting is a process to estimate the cash generated and used from a project or new plant.
The net income is just a measure of profitability and doesn’t reflect the actual cash that is available for investment.

Conclusion

So, the reason to consider cash flow is that actual cash is required and spent for the projects or expansion plans of a company.

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Answer 3

Question

Chapter 12, Problem 1Q

Summary Introduction

To explain: The reason to focus on cash flow instead of net income in capital budgeting.

Introduction:

Operating Cash Flow:

The amount of cash used in or generated from the operations of the business is reported under the category of operating cash flow in the statement of cash flow. This is prepared as a part of financial statement at the end of an accounting period. The net balance is calculated and depicted as net cash from operating activities.

Expert Solution & Answer

Answer to Problem 1Q

Cash flow is used instead of accounting income because actual cash is required and spent for the projects or expansion plans of a company.

Explanation of Solution

The capital budgeting is a process to estimate the cash generated and used from a project or new plant.
The net income is just a measure of profitability and doesn’t reflect the actual cash that is available for investment.

Conclusion

So, the reason to consider cash flow is that actual cash is required and spent for the projects or expansion plans of a company.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 12, Problem 1Q

Summary Introduction

To explain: The reason to focus on cash flow instead of net income in capital budgeting.

Introduction:

Operating Cash Flow:

The amount of cash used in or generated from the operations of the business is reported under the category of operating cash flow in the statement of cash flow. This is prepared as a part of financial statement at the end of an accounting period. The net balance is calculated and depicted as net cash from operating activities.

Expert Solution & Answer

Answer to Problem 1Q

Cash flow is used instead of accounting income because actual cash is required and spent for the projects or expansion plans of a company.

Explanation of Solution

The capital budgeting is a process to estimate the cash generated and used from a project or new plant.
The net income is just a measure of profitability and doesn’t reflect the actual cash that is available for investment.

Conclusion

So, the reason to consider cash flow is that actual cash is required and spent for the projects or expansion plans of a company.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 12, Problem 1Q

Summary Introduction

To explain: The reason to focus on cash flow instead of net income in capital budgeting.

Introduction:

Operating Cash Flow:

The amount of cash used in or generated from the operations of the business is reported under the category of operating cash flow in the statement of cash flow. This is prepared as a part of financial statement at the end of an accounting period. The net balance is calculated and depicted as net cash from operating activities.

Expert Solution & Answer

Answer to Problem 1Q

Cash flow is used instead of accounting income because actual cash is required and spent for the projects or expansion plans of a company.

Explanation of Solution

The capital budgeting is a process to estimate the cash generated and used from a project or new plant.
The net income is just a measure of profitability and doesn’t reflect the actual cash that is available for investment.

Conclusion

So, the reason to consider cash flow is that actual cash is required and spent for the projects or expansion plans of a company.

Answer 6

Chapter 12, Problem 1Q

Summary Introduction

To explain: The reason to focus on cash flow instead of net income in capital budgeting.

Introduction:

Operating Cash Flow:

The amount of cash used in or generated from the operations of the business is reported under the category of operating cash flow in the statement of cash flow. This is prepared as a part of financial statement at the end of an accounting period. The net balance is calculated and depicted as net cash from operating activities.

Expert Solution & Answer

Answer to Problem 1Q

Cash flow is used instead of accounting income because actual cash is required and spent for the projects or expansion plans of a company.

Explanation of Solution

The capital budgeting is a process to estimate the cash generated and used from a project or new plant.
The net income is just a measure of profitability and doesn’t reflect the actual cash that is available for investment.

Conclusion

So, the reason to consider cash flow is that actual cash is required and spent for the projects or expansion plans of a company.

Answer 7

Chapter 12, Problem 1Q

Summary Introduction

To explain: The reason to focus on cash flow instead of net income in capital budgeting.

Introduction:

Operating Cash Flow:

The amount of cash used in or generated from the operations of the business is reported under the category of operating cash flow in the statement of cash flow. This is prepared as a part of financial statement at the end of an accounting period. The net balance is calculated and depicted as net cash from operating activities.

Answer 8

Expert Solution & Answer

Answer to Problem 1Q

Cash flow is used instead of accounting income because actual cash is required and spent for the projects or expansion plans of a company.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Explanation of Solution

The capital budgeting is a process to estimate the cash generated and used from a project or new plant.
The net income is just a measure of profitability and doesn’t reflect the actual cash that is available for investment.

Answer 12

Conclusion

So, the reason to consider cash flow is that actual cash is required and spent for the projects or expansion plans of a company.

Answer 13

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Answer to Problem 1Q

Explanation of Solution

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