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A project namely as Bisham came up by Virgin Media Inc. - Essay Example
The intention of this study a project namely as Bisham came up by Virgin Media Inc. with which has a total life of eight years. This article aims to evaluate on financial grounds whether the project is worthwhile for the Virgin Media Inc. Company or not. …
The paper tells that investment appraisal techniques basically work on the basis of incremental cash flows and not on the basis of net income. Incremental cash flows are the additional cash flows that a firm generates by investing in a particular project, thus the cash flows being generated from that project are added to the projected net income of the firm. However, in order to ensure whether a certain project is viable for the firm or not, the decision lies on the overall net cash flows pertaining to that project. The net cash flows of a particular project can be obtained by subtracting the net income of the company without accepting a project, from the net income of the firm with accepting a project. The basic formula for the incremental cash flows of a particular project is:
Net cash flows of the project = Net Income of the company with the project - Net Income of the company without the project
The reason behind using incremental cash flow approach in investment appraisal techniques is that it clearly states the actual cash outflows and inflows of a particular project. In case, when a firm has more than one projects and the firm has to decide which project needs to be opted, at that time this incremental approach assists the financial managers of the company, as the overall net income of the company might increase with every project, but the incremental cash flow approach clearly distinct between every project and their viability. As a result, the incremental approach is more useful in appraising different projects.