The incremental cash flows that will be generated by the manufacturing firm using the new equipment in problem 1 are provided below.What is the approximate net present value of the new equipment based on the projected cash flows? Manufacturing firm(In Php 000)123456Net income1072,0813,8965,3286,8628,509Depreciation andamortization14,28614,28614,28614,28614,28614,286Change in NWC(326)(353)(285)(149)(153)(158)Сарех(100,000)Interest expense6,6505,5504,3453,0261,582Incremental cash flows(100,000)20,71721,56422,24222,49122,57622,636Discount factor0.92810.86130.79940.74190.68850.6390

Net present value = Present value of cash inflows - Present value of cash outflows

Answered: net present value

Business

Accounting

net present value

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

The incremental cash flows that will be generated by the manufacturing firm using the new equipment in problem 1 are provided below.

What is the approximate net present value of the new equipment based on the projected cash flows?

Manufacturing firm
(In Php 000)
1
2
3
4
5
6
Net income
107
2,081
3,896
5,328
6,862
8,509
Depreciation and
amortization
14,286
14,286
14,286
14,286
14,286
14,286
Change in NWC
(326)
(353)
(285)
(149)
(153)
(158)
Сарех
(100,000)
Interest expense
6,650
5,550
4,345
3,026
1,582
Incremental cash flows
(100,000)
20,717
21,564
22,242
22,491
22,576
22,636
Discount factor
0.9281
0.8613
0.7994
0.7419
0.6885
0.6390

Definition Definition Net amount of cash that an entity receives and expends over the course of a given period. For a business to continue operating, positive cash flows are required, and they are also necessary to produce value for investors. Investors in particular prefer to see growing cash flows even after capital expenditures have been paid for (which is known as free cash flow).

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