Cash Flow Projections, Competitive Forces, and Management Assessment
Q: Would it be inappropriate to also scale up the accumulated depreciation?
A: It wouldn’t be inappropriate to do so, but it is unnecessary since all the values in cash flow projections and in cash budgets are cash amounts. Even so, scaling up depreciation expenses allows us to put together a projected income statement and balance sheet if we wish to do so.
Q: In the disaster scenario, fixed asset spending increases from $400,000 to $600,000. Wouldn't a company delay this if they could in this scenario?
A: A company would indeed delay any and all fixed asset spending if it could. In this instance, Sierra Products presumably believed that $600,000 in equipment and provisions to guard against the pandemic was absolutely essential to retaining its work force and its ability to maintain its productive capacity. Otherwise, the company would definitely delay such cash outflows in a time of a severe cash crisis.
Course overview: Cash Flow Projections, Competitive Forces, and Management Assessment