Question
The Dante Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated below. The corporate tax rate is 40 percent. Assume
The Dante Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated below. The corporate tax rate is 40 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 $ 26,000 Sales revenue $ 13,500 $ 14,000 $ 14,500 $ 11,500 Operating costs 2,900 3,000 3,100 2,300 Depreciation 6,500 6,500 6,500 6,500 Net working capital spending 320 370 420 320 ? 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 11 percent. What is the NPV of the project?
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