To arrive at the set of projected incremental cash flows used in evaluating any investment, it is usually necessary to project the impact of the investment on the revenues and expenses of the company. Some investments will affect only the expense components (i. e. , cost-saving investments), whereas others will affect revenues as well as costs. Projecting how various expense and revenue items will be affected. If the investment is undertaken is not an easy task, for incremental impacts are often difficult to assess.
In some cases, such as the impact of a new product on the sales of an existing product that is considered a substitute, the problem is the uncertain extent of the erosion. In other cases, such as with overhead items (e. g. , accounting services, plant security, a regional warehouse system), the problem arises because there is not a well-defined cash flow relationship between the incremental action contemplated and these costs. No exact solution exists to these knotty problems. An investment in plant or equipment to produce a new product will probably also requires an investment in current assets less current liabilities (working capital).
There may be an increase in raw material, work-in-process, and finished goods inventories. Also, if there are sales on credit rather than cash, accounts receivable will increase; that is, sales per the income statement will be collected with a lag, and there will be an increase in accounts receivable. Finally, not all payables will be paid immediately, and this lag will manifest itself in an increase in current liabilities (reducing the need for other financing).
The Term Paper on How Good Packaging Design Increase Product Sales
In the era of competitiveness, every company is going to increase profits by boosting their product sales. In fact, it is universally acknowledged that product sales can be affected by a number of factors such as advertising, sales promotion, personal selling and public relation (PR). Nonetheless, one of the most significant sales' influencers is packaging design. It has been used as a crucial ...
Thus, a working capital investment (a negative cash flow and a need for capital) usually accompanies he direct investment in plant and equipment. One can assume that the working capital investment is fully turned into cash at the hypothesized end of the project. That is, it is assumed that inventories are depleted, receivables are collected, and payables are paid. Hence, over the life of the project, the sum of the working capital changes should be zero if this assumption is accepted. However, the commitment of resources to working capital has a cost (the time value of money) even if those resources are ultimately freed. Reference link: http://classof1. com/homework-help/accounting-homework-help
