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all of the following are related to a proposed project. which of these should be included in the cash flow at time zero? i. purchase of $1,400 of parts inventory needed to support the project ii. an interest expense of $125,000 accrued to the liabilities of the project iii. depreciation tax shield of $1,100 iv. $6,500 of equipment needed to commence the project

Respuesta :

As all of the options are related to a proposed project, the one that should be included in the cash flow at time zero is purchases of $1,400 of parts inventory needed to support the project and $6,500 of equipment needed to commence the project. (Option I and IV)

Cash flow is defined as the net amount of cash and cash equivalents that are brought in or spent over a period of time. Cash received is referred to as inflows and money spent is referred to as outflows. The cash flow at time zero or initial cash flow refers to cash flow already in present value terms and does not need to be adjusted for time value. It is paid at the commencement of the project and is not discounted as it is not a future value rather a present value. Initial investment in inventory to support the project should be included in the time zero cash flow. Hence, purchases of $1,400 of parts inventory needed to support the project and $6,500 of equipment needed to commence the project should be included.

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