To estimate earnings and cash flows on a typical project for the firm.

Key Questions:

1. Does your firm have a typical investment?

2. If so, can you estimate the earnings and cash flows on a typical investment?

Framework for Analysis:

1. Typical Investment 1.1. Does your firm take a few or several investments each year?

1.2. Do these investments have much in common?

1.3. If so, what do they have in common and what are the differences?

2. Earnings and Cash Flows 2.1. What is the typical life of an investment made by your firm?

2.2. What is the pattern of earnings on such an investment?

2.3. What is the pattern of cash flows on such an investment?

2.4. Based upon the company’s aggregate numbers, can you estimate the earnings and cash flows on a hypothetical investment?

Getting Information on Projects Firms do describe their investments, though not in significant detail, in their annual reports. The statement of cash flows will provide some breakdown, as will the footnotes to the financial statements.

Online sources of information:

http://www.stern.nyu.edu/~adamodar/cfin2E/project/data.htm