What are the different methods used for estimating free cash flows in capital budgeting?

The different methods used for estimating free cash flows in capital budgeting include:

1. Net Cash Inflows: This method involves estimating the net cash inflows generated by the project over its useful life. It considers the cash inflows from sales, minus any cash outflows such as operating expenses, taxes, and working capital requirements.

2. Accounting Profit: This method estimates the accounting profit generated by the project and then adjusts it for non-cash expenses such as depreciation. The resulting figure represents the estimated free cash flows.

3. Tax Shield Approach: This method takes into account the tax benefits associated with depreciation expenses. It calculates the tax savings resulting from depreciation and adds it to the net cash inflows to estimate the free cash flows.

4. Incremental Cash Flows: This method focuses on the incremental cash flows generated by the project, which are the additional cash flows that result from undertaking the investment. It considers the difference between the cash flows with the project and without the project to estimate the free cash flows.

5. Adjusted Present Value (APV): This method calculates the present value of the project's cash flows, including the tax benefits of debt financing and any other relevant factors. It adjusts the cash flows for the effects of financing decisions to estimate the free cash flows.

It is important to note that different methods may be more appropriate for different situations, and the choice of method depends on the specific circumstances and assumptions of the project being evaluated.