1) Relevant Cash Flows. Kenny, Inc., is looking at setting up a new manufacturing plant in South Park. The company bought some land six years ago for $7 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent facilities elsewhere. The land would net $9.8 million if it were sold today. The company now wants to build its new manufacturing plant on this land; the plant will cost $21 million to build, and the site requires $850,000 worth of grading before it is suitable for construction. What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project? Why?

2) Projected Net Income. A proposed new investment has projected sales of $825,000. Variable costs are 55 percent of sales, and fixed costs are $187,150; depreciation is $91,000. Prepare a pro forma income statement assuming a tax rate of 35%. What is the projected net income? Please show detail whether using excel or in the textbox of the submission window. Use: Projected Net Income Template to solve this problem.

Pro Forma Income Statement 1 - 2 0 0 0 Year Sales Variable Costs Gross Profit Fixed Costs Depreciation EBIT Taxes Net Income 0 0 0 0 0 0 0 0 0 Cash Flows 0 Operating Cash Flow Changes in NWC Net Capital Spending Cash Flow From Assets 0 | 0 | 0 | Net Present Value IRR $0.00