Cash flows

1. For capital budgeting we create a timeline of project cash flows. In class we discussed that we actual need three timelines. a. The first timeline is operating cash flows which is EBIT - taxes + depreciation. Why do we add back depreciation? b. The second timeline is capital expenditures (productive assets). Are capital expenditures limited to the cost of the asset (for example: a machine press) or do we include the costs of shipping and installation? Why? At the end of the timeline, we sell the productive asset for salvage. Do the salvage cash flows include taxes? Explain. c. The third timeline is working capital. Why do we use the change () of working capital instead of the level? (Hint: recall the operating section of the statement of cash flows)