Business Ratios Question:
How to illustrate net incremental cash flows?
Answer:
To illustrate net incremental cash flows let's assume that Your Corporation has the opportunity to purchase a product line from Divesting Company for a single cash payment of $800,000. Your Corporation expects that the product line will result in the following cash flows occurring in each year for 10 years:
★ Additional cash receipts or cash inflows of $900,000 (from the collection of accounts receivable related to product sales)
★ Additional cash payments or cash outflows of $750,000 (for payments related to the product line's costs and expenses)
These cash flows indicate that the net incremental cash flows are expected to be a positive $150,000 per year for 10 years, or that there will be net incremental cash inflows of $150,000 per year for 10 years.
★ Additional cash receipts or cash inflows of $900,000 (from the collection of accounts receivable related to product sales)
★ Additional cash payments or cash outflows of $750,000 (for payments related to the product line's costs and expenses)
These cash flows indicate that the net incremental cash flows are expected to be a positive $150,000 per year for 10 years, or that there will be net incremental cash inflows of $150,000 per year for 10 years.
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