Finance. Chapter 11 Cash flow estimation & risk analysis. Perspective. Procedures for estimating cash flow associated with capital budgeting Techniques to measure and take account of project risk
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The most important and difficult step is estimating the incremental after-tax cash flows the project will produce
Only incremental cash flows are relevant
Recall that free cash flow is the cash flow available for distribution to investors, therefore, the relevant cash flow for a project is the additional free cash flow that the company expects if it implements the project, i.e., the cash flow above and beyond what the company would expect if it doesn’t implement the project.