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The Fortune Company is considering a new investment. Financial projections for the investment are tabulated below. The corporate tax rate is 23 percent. Assume
The Fortune Company is considering a new investment. Financial projections for the investment are tabulated below. The corporate tax rate is 23 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. Investment Sales revenue Operating costs Depreciation Net working capital spending Year 0 Year 1 Year 2 Year 3 Year 4 $ 27,000 $ 14,000 3,000 $ 14,500 3,100 330 6,750 380 6,750 430 $ 15,000 3,200 6,750 $ 12,000 2,400 6,750 330 ? a. Compute the incremental net income of the investment for each year. Note: Do not round intermediate calculations. Year 1 Year 2 Year 3 Year 4 Net income b. Compute the incremental cash flows of the investment for each year. Note: Do not round intermediate calculations. A negative answer should be indicated by a minus sign. Year 0 Year 1 Year 2 Year 3 Year 4 Cash flow c. Suppose the appropriate discount rate is 13 percent. What is the NPV of the project? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. NPV
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