Relevant Cash Flows

Jul 17, 2026

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Session 5 of an ACCA F9 Financial Management study guide focuses on relevant cash flows for discounted cash flow analysis, emphasizing which revenues and costs must be included in NPV and IRR. It explains the decision rule based on future, incremental operating cash flows while excluding sunk costs, non-cash items like depreciation, book values, unavoidable costs, and financing cash flows. It also covers taxation effects and timing, inflation handling through real vs nominal methods and consistent discount rates, and working-capital cash flows at start-up, during the project, and at termination, including protective approaches against inflation.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages28

Reading Time1 h 11 min

AccessFree to download

Session 5 Relevant Cash Flows FOCUS This session covers the following content from the ACCA Study Guide. | D . Investment Appraisal | | | --- | --- | | 1. Investment appraisal process techniques
a) Identify and calculate relevant cash flows for investment projects.
2. Allowing for inflation and taxation in DCF
a) Apply and discuss the real-terms and nominal-terms approaches to investment appraisal.
b) Calculate the taxation effects of relevant cash flows, including the tax benefits of capital allowances and the tax liabilities of taxable profit.
c) Calculate and apply before-and after-tax discount rates. | | ~~ Session 5 Guidance ~~ Understand the characteristics of relevant revenues and costs for NPV/IRR calculations (s.1. 1) and work Example 1 to test your level of understanding. Be sure to understand the two effects of taxation (s.2. 1), the timing issues (s.2. 2), underlying assumptions (s.2.3) and how to set up an analysis to include taxation (s.2.4) . Carefully, work through Illustration 1 and Examples 2 and 3. (continued on next page) F9 Financial Management Becker Professional Education | ACCA Study System Al[i Niaz-ali.niaz777@gmail.com](i Niaz-ali.niaz777@gmail.com) VISUAL OVERVIEW Objective: To be able to recognise relevant costs, determine the taxation effects of a new investment, deal with inflation, and deal with cash flows relating to working capital when completing discounted cash flow analysis. RELEVANT COSTS INFLATION • Problems Caused by Inflation • Real and Nominal Interest Rates • General and Specific Inflation Rates • Differing Cash Flow Forecasts • Discounting WORKING CAPITAL • At Start-up • Movements • Incorporating in Investment Appraisal • Protecting Against Inflation ~~ Session 5 Guidance ~~ Read section 3 on discounting with inflation. Understand that if inflation is included in the cash flow forecast (known as nominal cash flows), then the discount rate must also include inflation (the nominal discount rate) . Know how to apply real and nominal methods to investment appraisal. Try Illustrations 2 and 3 and Examples 4–6. Review section 4 on working capital cash flows and be able to determine these cash flows at aproject's start-up, during its life and when it ends. Work Example 7. Read, as additional review, the article "Advanced Investment Appraisal", which can be found at: [www.accaglobal.com/content/dam/acca/global/PDF-students/2012/advancedInvest.pdf](www.accaglobal.com/content/dam/acca/global/PDF-students/2012/advancedInvest.pdf) © 2014 DeVry/Becker Educational Development Corp. All rights reserved. 5-1 Al[i Niaz-ali.niaz777@gmail.com](i Niaz-ali.niaz777@gmail.com) Session 5 • Relevant Cash Flows F9 Financial Management 1 Relevant Costs 1.1 General Rule Include only those costs and revenues which are affected by the decision. This means using only: 􀀟 future; 􀀟 incremental; and 􀀟 operating cash flows. Operating cash fl

Jul 17, 2026

Upload by Ezra