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Fundamentals of Financial Management, Third Edition by Vyuptakesh Sharan

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5.2 THE CONCEPT OF CASH FLOWS

5.2.1 Nature and Timing of Cash Flows

The long-term investment of funds, makes a demand on a part of the firm’s current wealth, however, it also brings in funds and adds to the firm’s stock of wealth in the future. While the former results in cash outflows from the firm, the latter is represented by cash inflows into the firm. Cash inflows thus include primarily revenue on account of additional sales or cash from the eventual sale of the assets, known as the salvage value. Cash outflows, on the other hand, occur on account of capital expenditures, other expenses, excluding depreciation, and payment of income tax.

Cash flow is related to different periods of time. And accordingly, cash flow is trifurcated. The three ...

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