8l for shahimermaid finance r

Marta Ortiz

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1. Discuss differences between cash flow and accounting income and why it is important to use cash flow in making capital budgeting decisions.

Cash flows is a revenue or expense stream that changes a cash account over a given period.

Accounting income equals total revenues minus total expenses, but a variety of indicators, including gross income and operating income, make it into a company’s profitability line.

Cash flow management covers a liquidity report, whereas accounting income is part of an income statement report on income and statement for profit and loss.  Some companies might be making a large amount of money in terms of their income, but are doing poorly when it comes to cash flow.  The cash flow is used to reconcile the difference between the company’s reported income and the actual amount of money that was received in cash.  When computing cash flow, the company adds back non-cash losses such as depreciation, capital losses, increases in debt and decreases in accounts receivable.  They must subtract out any gains that did not provide cash, including gains on cpaita assets, increases in receivables and decreases in debt.  Cash flow is crucial to an entity’s survival.  Having cash on hand will ensure that creditors, employees and others can be paid on time.  A capital project is a major nonrecurring expenditure.  A capital budget is a formal plan to expend the resources necessary to acquire or create the fixed assets that the subject of the capital project.

2. How do companies generate ideas for capital projects? Give some examples of capital projects that companies in certain industries might undertake.

Companies often ask various department managers to submit their proposals, or ideas for capital projects.  Department managers often see potential improvements within their area.  Senior management determines what parameters each accepted capital project needs to meet.  Senior management performs an initial screening of all the projects. 

I believe that Google is a company that is growing each day that goes by.  It is a company that along with committees most likely composed of finance, marketing, technology, and other executives are charged up with coming up with ideas to improve the company and the products and services offered by the company.  They have to make sure that Google is working it at its best so that competitors do not outbeat their services.  They have to stay on top of what is it that the computers literates are looking for on an everyday basis and ways to improve the search engine.

Another project that intrigues me is bridges.  The reason for this is because I always wonder how they are built but most importantly how are they maintained if they are in the water.  They too, most likely have various committees such as dot, engineers on different of various levels to come up with the ideas to manage the bridges that are driven through everyday on a daily basis.  In my opinion, this is an example of a capital project in the public sphere.

Arisleyda Fernandez

Accounting income is the financial figure that we get after deduction of all business expenses from sales. “Cash flow is the mechanism by which we see net cash generated or absorbed in business from different activities” (Wiki).Cash flow is the movement of money into or out of a business, project, or financial product. All investments in capital assets are expected to earn a return, which is evaluated by comparing the projects forecasted cash outflows to cash inflow. An organization’s management evaluates and positions alternative capital investments using the capital budgeting process in order to make top investment decisions. One of the primary goals of capital budgeting investments is to increase the value of the firm to the shareholders.

Ideas for capital budgeting projects usually are generated by employees, customers, suppliers, and so forth, and are based on the needs and experiences of the firm and of these groups. One example is that a sales representative might continue to hear from some of his or her customers that there is a need for products with particular characteristics that the firm’s existing products do not keep. The sales representative presents the idea to management, who in turn calculates the capability of the idea by consulting with engineers, production personnel, and perhaps by conducting a study.

Naimah Bogert

The difference between cash flow and accounting income is that cash flow is one of the central elements of financial analysis, planning and resource allocation decisions.  Cash flow is what is expected to be generated over a number of future years.  Accounting income does not reflect the actual cash inflows and outflows of a firm.  Accounting income is not the relevant source of value in a firm.  It is important to use cash flow in marketing capital budget because firms prepare their cash flow estimate for over 60% of their annual capital outlays.  They also have to produce cash flow projections for capital investment requiring an initial outlay.  When there is a high capital intensity and high leverage, a firm will have different departments overseeing the process of cash flow.

 

Companies generate ideas for capital projects by identifying and analyzing capital expenditures.  They often split up the responsibilities among different groups within the company.  These groups come up with the project’s cost, the revenue expected to generate and how it will affect the firm’s overall operating expenses.  The automobile industry uses projects generated by growth opportunities.  Automobile may want to expand production by opening up another plant at a different location.  Technology industry uses projects generated by cost reduction opportunities.  Replacing old obsolete capital equipment with newer, more efficient equipment can help save money. 

Irina Kaplan

1. Discuss differences between cash flow and accounting income and why it is important to use cash flow in making capital budgeting decisions.

 

Cash comes in the sale of assets, from sales product, loan proceeds, investments and goes out to pay for operating and direct expenses, principal debt service, and the purchase of assets. Cash flow refers to the actual cash generated or paid by the firm. Only cash can be used to buy assets, and only cash can be used to make valuable distributions to investors. In difference, the accounting system focuses mainly on a matching over time of the historic, cost-based revenues and expenses of a business, follow-on in a bottom -line earnings figure. But accounting earnings are often false because they do not reproduce the actual cash inflows and outflows of the business. For example, an accountant records depreciation expense on an asset each period over the depreciable life of that asset. Depreciation is designed to reflect the decline in value of that asset over time. However, depreciation itself results in no cash outflow. The entire cash outflow occurred when the asset was originally purchased.

2. How do companies generate ideas for capital projects? Give some examples of capital projects that companies in certain industries might undertake.

The budgeting process for many companies includes evaluation capital projects and deciding which projects to undertake in the future year The first step is to get or generate project ideas. These ideas can be put forth by the management, employees, or even outsiders. Department managers often see potential improvements within their area, such as conveyor belts or automation. Submitting such ideas allows management to consider these options when finalizing the budget. Companies follow several steps when making decisions regarding which capital projects to include in the budget.

Examples of capital projects can be examples in public area like transportation projects such as roads, railways. Capital projects are also general in the commercial world as well, as companies will distribute large sums of resources in order to build upon or maintain capital assets, such as machinery machinery or other equipment and places to save such items. In both cases, capital projects are typically planned and contested for a long stage to determine the most proficient and resourceful method of end.

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