Page 204 - DMGT521_PROJECT_MANAGEMENT

Unit 11: Project Cash Flow

11.9 Keywords Notes

Cash Flow: It is the movement of money into or out of a business, project, or financial product.
Cost of Capital: Cost of capital is determined by the market and represents the degree of
perceived risk by investors.
Cost of Equity: The cost of equity is more challenging to calculate as equity does not pay a set
return to its investors.

Initial Investment Outlay: These are the costs that are needed to start the project, such as new
equipment, installation, etc.
Operating Cash Flow: This is the additional cash flow a new project generates.

Terminal-Year Cash Flow: This is the final cash flow, both the inflows and outflows, at the end
of the project's life; for example, potential salvage value at the end of a machine's life.

11.10 Review Questions

1. Discuss about Project Cash Flow.

2. What are the elements of a cash Flow Stream?
3. What is the Physical Life of the Plant?
4. Describe about the Product Market Life of the Plant.

5. Explain about the cash flow for a replacement Project.
6. Explain about Cost of Capital.
7. Discuss about WACC.
8. What do you know about optimal capital Budget?
9. Discuss about Capital Rationing.

10. What are the other factors affecting the optimal capital Budget?
11. Describe about Project Maturity.

Answers: Self Assessment

1. Cash Flow 2. Obsolete
3. Plant 4. Time Period

5. Financial Manager 6. Marginal
7. Capital 8. IOS
9. MCC 10. NPV
11. Computer Software 12. Managers

13. Economic 14. Financial

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