What is meant by the cash flows being dependent and independent over time.
Could any one please tell me about the probability calculations and the logic behind it in each of case of the cash flows and NPV for independent and dependent cash flows?
1 Replies
CA Hemang Shah
(PRACTICE)
(658 Points)
Replied 06 February 2014
Dependent cash flow means select the option which according to ur plan and there is no partition in plan and independent cash floe means select the best plan which gives maximum returns.
For Ex.
Suppose u have Rs. 500000 for investment. and u have 5 option as under.
1.100000- 10000 return
2.200000-15000 Return
3.150000- 10000 Return
4.175000- 15000 Return/
5. 180000- 17500 Return
Now u have Rs .500000....our goal is to maximize return.
Dependent cash flow.
strategy is to invest is first invest Re. 100000 in paln 1 ,,
Second invest in plan 5.....so now remaining 220000 and invest in plan 4 to maximize return that is plan 4 Rs.175000...now Return is 10000+17500+15000....and balance 45000 u cannot invest.
in independent cashflow u can invest in fraction so there is no balance remaining.
1. 100000-10000
2.180000-17500
3.175000-15000
4.invest in paln 2 balance amount and get return.
Hope u understand.
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