In the previous problem, suppose the investment is depreciated using the reducing balance method at 25 per cent per annum. All the other facts are the same. What is the project’s year 1 net income now? Year 2? Year 3? Year 4? What is the new NPV?

Previous problem,

In the previous problem, suppose the project requires an initial investment in net working capital of €2,000 and the investment will have a
market value of €1,000 at the end of the project. Assume the discounting rate to be 12 per cent. What is the project’s year 0 net cash flow? Year 1? Year 2? Year 3? Year 4? What is the new NPV?

Previous problem,

Carlsberg is considering a new retail lager investment in Copenhagen. Financial projections for the investment are tabulated here. The Danish
corporate tax rate is 25 per cent and the investment is depreciated using 20 per cent reducing balances. 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 and the investment is sold at its residual value after depreciation.

(a) Compute the incremental net income of the investment for each year.
(b) Compute the incremental cash flows of the investment for each year.
(c) Suppose the appropriate discount rate is 12 per cent. What is the NPV of the project?

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Year 0 Year 1 Year 2 Year 3 Year 4 () () () () () Investment 325,000 Sales revenue 105,000 105,000 105,000 105,000 Operating costs 20,000 20,000 20,000 20,000 Net working capital spending 10,000 2,000 3,000 4,000 ?