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 $ 26,500                     Sales revenue     $ 13,600   $  15,200   $ 16,600   $ 13,100     Operating costs       3,000     3,150     4,400     3,000     Depreciation       6,625     6,625     6,625     6,625     Net working capital spending   310     210     245     160     ?     a. Compute the incremental net income of the investment for each year. (Do not round intermediate calculations.)     b. Compute the incremental cash flows of the investment for each year. (Do not round intermediate calculations. A negative amount should be indicated by a minus sign.)       c. Suppose the appropriate discount rate is 10 percent. What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

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Chapter19: Capital Investment
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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 $ 26,500                  
  Sales revenue     $ 13,600   15,200   $ 16,600   $ 13,100  
  Operating costs       3,000     3,150     4,400     3,000  
  Depreciation       6,625     6,625     6,625     6,625  
  Net working capital spending   310     210     245     160     ?
 

 

a.

Compute the incremental net income of the investment for each year. (Do not round intermediate calculations.)

 

 

b.

Compute the incremental cash flows of the investment for each year. (Do not round intermediate calculations. A negative amount should be indicated by a minus sign.)


   

 

c.

Suppose the appropriate discount rate is 10 percent. What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)


   

 

 

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