Page 106 - DBP5043

MEASURING A PROJECT’S BENEFITS

AND COSTS (RELEVANT CASH FLOW)

Annual cash Flow after tax (the differential cash flows
over the project’s life)

Cash Flow That Occur throughout The Useful Life of the Project.

Example If The Project Lasts For 5 Years Refer To The Annual Cash
Flows That We Will Receive Or Pay From Year 1 To Year 5.

Benefits Costs
Increase in sales Increase in electricity expense

Decrease in labour costs or Increase in maintenance expense
salaries

Decrease in cost of defects Increase in advertising expense
Decrease in operating expenses Increase in operating expense

How to calculate Annual cash Flow after tax
Profits Cash flow

Benefits :
Increase in revenue xx xx

Decrease in cost of defects xx xx
xxx xxx

Less : cost
Increase in operating expenses (xx) (xx)
xx xx

Less : increase in depreciation
(xx) (xx)

xx xx
Net profit before tax xx xx

Less: taxation (28%) (xx) (xx)
Net profit after tax xx
After tax differential cash flows xxx