The Fleming Manufacturing Company is considering a new investment. Financialprojections 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 arepaid in cash, and all cash flows occur at the end of the year. All net working capital isrecovered at the end of the project.Year OYear 1Year 2Year 3Year 4$27,000InvestmentSales revenue$ 14,000 $ 14,500 $15,000 $12,000Operating costsDepreciationNet working capital spending2,4006,750?3,2003,0006,7503803,1006,7506,750330430330a. Compute the incremental net income of the investment for each year. (Do not roundintermediate calculations.)Year 1Year 2Year 3Year 4Net incomeb. Compute the incremental cash flows of the investment for each year. (Do not roundintermediate calculations. A negative answer should be indicated by a minus sign.)Year 0Year 1Year 2Year 3Year 4Cash flow( Prev2 of 10Next > a. Compute the incremental net income of the investment for each year. (Do not roundintermediate calculations.)Year 1Year 2Year 3Year 4Net incomeb. Compute the incremental cash flows of the investment for each year. (Do not roundintermediate calculations. A negative answer should be indicated by a minus sign.)Year 0Year 1Year 2Year 3Year 4Cash flowc. Suppose the appropriate discount rate is 13 percent. What is the NPV of the project?(Do not round intermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.)NPV( Prev2 of 10Next >

net operating income =Revenue-cost of goods sold

The Fleming Manufacturing 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. Year 0 Year 1 Year 2 Year 3 Year 4 Investment $27,000 $ 14,000 $ 14,500 $15,000 $12,000 3,100 3,200 6,750 6,750 430 Sales revenue Operating costs Depreciation Net working capital spending 3,000 6,750 380 2,400 6,750 330 330 a. Compute the incremental net income of the investment for each year. (Do not round intermediate calculations.) Year 1 Year 2 Year 3 Year 4 Net income

The Fleming Manufacturing 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. Year 0 Year 1 Year 2 Year 3 Year 4 Investment $27,000 $ 14,000 $ 14,500 $15,000 $12,000 3,100 3,200 6,750 6,750 430 Sales revenue Operating costs Depreciation Net working capital spending 3,000 6,750 380 2,400 6,750 330 330 a. Compute the incremental net income of the investment for each year. (Do not round intermediate calculations.) Year 1 Year 2 Year 3 Year 4 Net income

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 17E: Postman Company is considering two independent projects. One project involves a new product line,...

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Manzer Enterprises is considering two independent investments: A new automated materials handling system that costs 900,000 and will produce net cash inflows of 300,000 at the end of each year for the next four years. A computer-aided manufacturing system that costs 775,000 and will produce labor savings of 400,000 and 500,000 at the end of the first year and second year, respectively. Manzer has a cost of capital of 8 percent. Required: 1. Calculate the IRR for the first investment and determine if it is acceptable or not. 2. Calculate the IRR of the second investment and comment on its acceptability. Use 12 percent as the first guess. 3. What if the cash flows for the first investment are 250,000 instead of 300,000?
Postman Company is considering two independent projects. One project involves a new product line, and the other involves the acquisition of forklifts for the Materials Handling Department. The projected annual operating revenues and expenses are as follows: Required: Compute the after-tax cash flows of each project. The tax rate is 40 percent and includes federal and state assessments.
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