Question
The Best Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated here. The corporate tax rate is 22 percent. Assume
The Best Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated here. The corporate tax rate is 22 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 |
|
| $ | 15,100 | $ | 16,700 | $ | 18,100 | $ | 14,600 |
| Operating costs |
|
|
| 3,750 |
| 3,525 |
| 5,900 |
| 4,500 |
| Depreciation |
|
|
| 7,000 |
| 7,000 |
| 7,000 |
| 7,000 |
| Net working capital spending |
| 385 |
| 285 |
| 395 |
| 235 |
| ? |
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 9 percent. What is the NPV of the project?
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Cornerstones of Financial and Managerial Accounting
Authors: Rich, Jeff Jones, Dan Heitger, Maryanne Mowen, Don Hansen
2nd edition
978-1111879044
