 We know that cash flows are the significant item that is used in the process of capital budgeting to determine financial worth of the intended project. These cash flows can be classified, can be arranged in a number of ways. The first way to organize and classify the project cash flow is according to the timing of their occurrence across the life of the project. In this regard, we can classify these cash flows into three heads. The first is the investment cash outflows or we can call them as initial cash outflows. These occur at the start of the project and these cash flows are placed because of investment in fixed assets and investment in networking capital items. Then we have operating cash flows that are computed after tax. These are the cash flows that are generated through the normal business operations of the project and these cash flows are related to the project's sale, cash operating expenses and taxes on the project's income. Then we have terminal years after tax non-operating cash flows or simply terminal cash flows. These terminal cash flows occur at the end of the project's life when assets of the projects are disposed of and these cash flows are related to the sale proceeds of the capital investment means fixed assets of the project and these terminal year cash flow also occur as a disposal of working capital. Then we can classify the project cash flow according to the types they have. The first type in this regard is the fixed capital. So the cash flows related to the investment of fixed assets are termed as fixed capital cash flows. Then the cash flows incurred in relation to working capital items like current assets, inventories, payables and other accrued expenses are termed as networking capital cash flows. Then we have operating cash flows that are the result of sale income minus cash expenses. Then we have depreciation tax savings and this is non-cash item that is used to determine operating cash flows. In fact, this depreciation tax saving is added back to the operating cash flows. Then we have after tax sale proceeds of the project assets at the time of projects end of its life. Then we have reversal or return of the investment in the networking capital. So we can classify the cash flows of a project according to the items like fixed capital, networking capital, operating cash flows and terminal cash flows which are sale proceeds of the assets and reversal of the networking capital item. Finally, we can present a project cash flow in terms of certain mathematical equations. This equation can be developed with reference to the timings of the cash flow and with reference to the items of the project cash flow. Like if we want to determine initial cash outflow which is a result of capital invested in the fixed assets and networking capital items of the project. So the equation we can have FCI plus NWCI means fixed capital investment plus networking capital investment for a new venture. This comes to the total of initial cash outlay for a replacement project. We have another variable and that is the sale of an existing asset which is used to deduct the after tax gain on the sale proceed of an existing asset. So this type of initial cash outflow can also be termed as incremental cash outflow. Next we can determine the annual tax annual after tax operating cash inflows of the project to determine these cash flows we use certain other measures like sales, operating cash expenses and depreciation we deduct from sales two variables. The first operating cash expenses and depreciation the resulting figure is cash operating income. We adjust this cash operating income by the current rate of tax and this termed as after tax operating cash income. Then we add back tax adjusted depreciation to this after tax operating income and the resulting figure is known as after tax operating cash inflows. And finally when we have terminal years cash inflows also known as non operating cash inflows we take the figure of salvage value or sale proceed of the assets that are sold at the end of the life of the asset and we also add the recovery of investment in net working capital items. Now we have sale proceeds of fixed in assets. We have recovery from net working capital items and the sum of these two variables is used to deduct the tax gain, tax adjusted gain on the sale proceed of the fixed capital investment. The resulting figure is known as terminal year after tax non operating cash inflows.