Suppose of friend of yours showed you the pro forma income statements for his start up and exclaimed excitedly that during the first three years of operations his firm will make a net income of PKR 1.5 Million per year, which is just the maount of money (4.5 Million) the firm will need to pay off a three year loan. Explain to your friend why he might not actually have PKR 4.5 Million in cash, even though his pro forma income statements say that he will earn that amount of money.

Suppose of friend of yours showed you the pro forma income statements for his start up and exclaimed excitedly that during the first three years of operations his firm will make a net income of PKR 1.5 Million per year, which is just the maount of money (4.5 Million) the firm will need to pay off a three year loan. Explain to your friend why he might not actually have PKR 4.5 Million in cash, even though his pro forma income statements say that he will earn that amount of money.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 9E: Each of the following scenarios is independent. All cash flows are after-tax cash flows. Required:...

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