Common financial practice dictates a few simple conventions for cash flow analyses:

1. All cash flows in a year are assumed to occur instantaneously at the end of the year for discounting purposes. Discounting is a process that estimates the present value of future costs, in order to reflect the time value of money and to reduce all future sums of money to an equivalent sum of money in the base period.

2. Year #0 presents an opportunity to instantaneously make a capital investment the night before year #1. The investment must be complete and must include any time value of money during installation.

3. Working capital comprises cash in company accounts, the cost-of-goods-sold portion of accounts receivable, and inventory (raw material, in-process, and finished goods), less accounts payable to others. Net working capital is closely tied to production levels. For simple analyses, a value between five and 10 percent of revenues is typical.

4. At the end of the model period, any built-up working capital attributable to the project is assumed to be returned to the project as a positive cash flow in the last year.

5. All remaining unused tax depreciation is taken in the last year of the model.