CF: Replacement Projects

I am struggling with CF replacement projects that consist of 1) initial cash outlay, 2) AT operating CF, and 3) TNOCF.

I’ve used the formulas that are in the Schweser text but when I go to review the answers they are in a balance sheet format and I get confused.

What are you guys doing that is helping you solve these type of problems? Thanks!

The replacement projects are tedious. You have to recognize initial investments, salvage values, working capital changes, recovery of working capital, taxes from sale of old and new assets, etc. You mess up one of those and it throws off your values. Just practice practice practice.

This is actually giving me difficulty as well I’m just doing my best to memorize the formulas

I wrote down the formulas and really broke them down into each step. Are any of you following a similar process? These type of mind maps tend to help me. I posted the link below.

I basically write several columns of data as I read the story.

Column1 is initial outlay… I put in that column anything that has to do with initial costs, initial replacements, working capital, etc.

Column2 is operating income for all the years. Revenue increases, cost increases, depreciation, etc

Column3 is terminal year non-operating items such as wc recovery, salvage values, taxes associated to each, etc.

Then add them up and plug and play.