The Best Manufacturing Company is considering a new investment.
Financial projections for the investment are tabulated here. The
corporate tax rate is 34 percent. Assume all sales revenue is
received in cash, all operating costs and income taxes are paid in
cash, and all cash flows occur at the end of the year. All net
working capital is recovered at the end of the project.
|
Year 0 |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
| Investment |
$ |
28,000 |
|
|
|
|
|
|
|
|
| Sales revenue |
|
|
$ |
14,500 |
$ |
15,000 |
$ |
15,500 |
$ |
12,500 |
| Operating costs |
|
|
|
3,100 |
|
3,200 |
|
3,300 |
|
2,500 |
| Depreciation |
|
|
|
7,000 |
|
7,000 |
|
7,000 |
|
7,000 |
| Net working capital spending |
|
340 |
|
390 |
|
440 |
|
340 |
|
? |
|
| a. |
Compute the incremental net income of the investment for each
year. (Do not round intermediate
calculations.)
|
|
Year 1 |
Year 2 |
Year 3 |
Year 4 |
| Net income |
$ |
$ |
$ |
$ |
|
| b. |
Compute the incremental cash flows of the investment for each
year. (Do not round intermediate calculations.
A negative answer should be indicated by a minus
sign.)
|
|
Year 0 |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
| Cash flow |
$ |
$ |
$ |
$ |
$ |
|
| c. |
Suppose the appropriate discount rate is 12 percent. What is the
NPV of the project? (Do not round intermediate calculations
and round your answer to 2 decimal places, e.g.,
32.16.)
|
