A finished FIN-650 Topic 6 relevant cash flow estimation example, with accounting profit converted to cash flow and only incremental amounts included. Searches like "fin 650 topic 6 assignment example", "fin650 topic 6 sample" and "fin-650 topic 6 example" land here.
What a finished FIN-650 Topic 6 relevant cash flow estimation looks like
The finished example builds cash from profit visibly. Non cash charges are added back, working capital movements are applied, and the example shows the two figures diverging so a reader can see why a profitable project can consume cash for its first two years. Incrementality is enforced throughout: sunk costs excluded and labeled, opportunity costs included even where nothing is invoiced, and side effects on existing products counted whether they help or hurt. Terminal value is handled explicitly, including the release of working capital and any salvage with its tax consequence. The example states which single input the answer is most sensitive to. Each adjustment is labeled with the reason it was made.
How a FIN-650 Topic 6 example is structured
The example converts profit into cash and then bounds it. It opens with the project and the accounting projection somebody has already prepared, since that is usually what a manager is handed. A second section converts it, adding back non cash charges and applying working capital movements period by period. A third enforces incrementality, listing what was excluded and what was added and why. A fourth handles the tax effects properly, including depreciation as a shield rather than as an outflow. A fifth builds the terminal period, releasing working capital and treating salvage with its tax consequence. A sixth presents the schedule and the resulting value at the divisional rate. A closing section names the assumption the recommendation most depends on.
Profit and cash shown diverging
A profitable project can consume cash for two years, and the schedule makes that visible rather than asserting it.
Working capital applied period by period
Cash tied up as the project grows and released at the end, which the accounting projection never showed.
Exclusions and additions both listed
Sunk costs named as excluded and opportunity costs named as added, since the discipline is only visible when stated.
Terminal period handled properly
Working capital released and salvage taxed, both of which are routinely omitted and both of which are real.
The critical assumption named
Which single input would most change the answer, so a reader knows where to push back.
Where marks go in FIN-650 Topic 6
Using accounting profit as though it were cash is the error this topic exists to remove, and it produces valuations that are wrong in both magnitude and timing. A second failure is working capital omitted, which understates the early cash requirement and overstates the project throughout. Papers lose marks for treating depreciation as an outflow rather than as a tax shield, which double counts a cost that was already paid when the asset was bought. Terminal period effects left out, particularly the release of working capital, understate the project by a meaningful amount. Schedules presented with no sensitivity comment imply a forecast precision that no multi year projection has. Projections carried to a fourth year with no basis stated invite the reader to discount the whole schedule.
Get a FIN-650 Topic 6 example written to your instructions
Send the FIN-650 Topic 6 problems and the rubric from your classroom, with the project projection your section supplied. We write a custom example to those criteria, with profit converted to cash visibly, working capital applied by period, exclusions listed and the terminal period handled in full, in 24 to 48 hours. The first is free.
FIN-650 Topic 6 questions, answered
Why not just use the accounting profit?
Because it records revenue and expense when they are earned and incurred rather than when money moves, and a capital decision is about money. Depreciation reduces profit without any payment, working capital consumes cash without touching profit, and the timing differences between the two can be substantial. Discounting profit instead of cash produces a valuation that is wrong in size and in timing.
How does working capital enter the calculation?
As an outflow when it builds and an inflow when it releases. A growing project ties up cash in inventory and receivables, partly offset by payables, and that increase is a real cash cost in the year it happens. At the end of the project the working capital is recovered, which is an inflow in the terminal period and is the piece most often forgotten.
What happens to salvage value?
It is a cash inflow in the final period, adjusted for tax. If the asset sells for more than its remaining book value, the excess is usually taxable and the cash received is less than the sale price; if it sells for less, there may be a tax benefit. Treating the sale proceeds as pure cash overstates the terminal inflow, which matters most for asset heavy projects.