7-3 Cash Flow Vs Accounting Income s Discount actual cash flows O Using accounting income, rather than cash flow could lead to erroneous decisions Example A project costs $2, 000 and is expected to last 2 years,producing cash income of $1, 500 and $500 respectively. The cost of the project can be depreciated at $1,000 per year. Given a 10% required return, compare the NPy using cash flow to the NPv using accounting income Irwin/McGraw-Hill CThe McGraw-Hill Commpanies, Inc, 2001©The McGraw-Hill Companies, Inc.,2001 7- 3 Irwin/McGraw-Hill Cash Flow vs. Accounting Income Discount actual cash flows Using accounting income, rather than cash flow, could lead to erroneous decisions. Example A project costs $2,000 and is expected to last 2 years, producing cash income of $1,500 and $500 respectively. The cost of the project can be depreciated at $1,000 per year. Given a 10% required return, compare the NPV using cash flow to the NPV using accounting income