7.3 The Best Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated below. (Cash flows are in $ thousands and the corporate tax rate is 34 percent.)

a. Compute the incremental net income of the investment.

b. Compute the incremental cash flows of the investment.

c. Suppose the appropriate discount rate is 12 percent. What is the NPV of the project?

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Year 0 Year 1 Year 2 Year 3 Year 4 Sales revenue 7,000 7,000 7,000 7,000 Operating costs 2,000 2,000 2,000 2,000 Investment 10,000 Depreciation 2,500 2,500 2,500 2,500 Net working capital 200 250 300 200 0 (end of year)