ABC Company is considering a new investment . Initially , this project requires a new fixed asset , which c osts 5 million . The fixed asset will be depreciated straight - line to zero over its five - year tax life , after whi ch it will be worthless . Financial projections for the investment are tabulated in the following table . The corporate tax rate is 30 % . Assume all sales revenue is received in cash , all operating costs and income t axes are also paid in cash , and all cash flows occur at the end of the year . All net working capital is reco vered at the end of the project ( in $ 000 )

( 1 ) . Compute the net income of the investment for each year .

( 2 ) . Compute the incremental cash flows of the investment for each year .

( 3 ) . Suppose the appropriate discount rate is 10 % . What is the NPV of the project ?

*1. ABC Company is considering a new investment. Initially, this project requires a new fixed asset, which c osts 5 million. The fixed asset will be depreciated straight-line to zero over its five-year tax life, after whi ch it will be worthless. Financial projections for the investment are tabulated in the following table. The corporate tax rate is 30%. Assume all sales revenue is received in cash, all operating costs and income t axes are also paid in cash, and all cash flows occur at the end of the year. All net working capital is reco vered at the end of the project. (in $000) (20 marks) (1). Compute the net income of the investment for each year. (2). Compute the incremental cash flows of the investment for each year. (3). Suppose the appropriate discount rate is 10%. What is the NPV of the project? Year-0.. Y car.l. Year 2. Year-3. Year 4. Year 3. Investment (cost of fixed asset). 5.000. Sales. 2.000. 2.200. 2 500. 3 000. 3.600 Costs: 800. 900. 1.000. 1.200- 1.400. Change in Net Working Capital. SO. 100. 120. 150. 200