The Best Manufacturing Company is evaluating a new investment opportunity. Here are the financial projections:### Financial Projections TableThe table presents data over four years, with the following entries:- **Year 0 Investment**: $27,000- **Sales Revenue**: - Year 1: $14,000 - Year 2: $14,500 - Year 3: $15,000 - Year 4: $12,000- **Operating Costs**: - Year 1: $3,000 - Year 2: $3,100 - Year 3: $3,200 - Year 4: $2,400- **Depreciation** (consistent across years): $6,750- **Net Working Capital Spending**: - Year 0: $330 - Year 1: $380 - Year 2: $430 - Year 3: $330 - Year 4: ?The corporate tax rate is specified at 34%. All cash transactions, including revenues, costs, and taxes, occur at the end of the year. Furthermore, all net working capital is expected to be recovered by the end of the project.### Tasks**a. Computing Incremental Net Income**You must compute the incremental net income for each year using the provided data. Intermediate calculations should not be rounded.- Year 1: $280- Year 2: $3,069- Year 3: $3,333- Year 4: $1,881**b. Computing Incremental Cash Flows**Calculate the incremental cash flows each year, ensuring any negative results are presented with a minus sign.- Year 0: -$2,730**c. Calculating NPV**With a discount rate of 13%, calculate the Net Present Value (NPV) of the project. The outcome should be accurately rounded to two decimal places.

The net present value is the difference between the present value of cash inflows and the present…

Answered: The Best Manufacturing Company is…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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a) Cash Flow Diagram b) manual solution Company C just went into a manufacturing contract. The contract will pay Company C $3 million starting 5 years from and amounts increasing by $100,000 each year through year 10. What is the present worth of the contract if the interest rate is 10% per year?
La Falaise Rouge Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult to estimate, management has projected the following cash flows for the first two years (in millions of dollars). Calculate the unlevered net income for Year 2. Revenues Costs of goods sold and operating expenses other than depreciation Depreciation Increase in networking capital Capital expenditures Marginal corporate tax rate Year 1 108 -36.6 -24.2 5.1 32.1 43% Year 2 156 -36.6 -38.6 8.9 42.5 43%
3. A company needs 5.3 years in order to recover all the cost of their investment. $4.9M is the annual profit and 5.5% of the total investment is the annual depreciation. Determine the total investment of the company.
Compute the payback perlod for an Investment with the following net cash flows. (Round your answer to one decimal place.) Net Cash Flows per Year Cumulative Net Cash Flows $ (101,000) $ (101,000) (90,900) (70,800) Year Initial investment 1. 2. 3. 5. 6. Payback period 10,100 20,100 20,100 26,640 40,100 40,100 years (50,700) (24,060) 16,040 56,140
Revenues generated by a new fad product are forecast as follows: Year 1 2 3 4 Thereafter Revenues $ 40,000 30,000 20,000 5,000 0 Expenses are expected to be 40% of revenues, and working capital required in each year is expected to be 20% of revenues in the following year. The product requires an immediate investment of $49,000 in plant and equipment. Required: a. What is the initial investment in the product? Remember working capital. b. If the plant and equipment are depreciated over 4 years to a salvage value of zero using straight-line depreciation, and the firm's tax rate is 20%, what are the project cash flows in each year? c. If the opportunity cost of capital is 10%, what is project NPV? d. What is project IRR?
A company is considering a $166,000 investment in machinery with the following net cash flows. The company requires a 10% return on its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Year 1 Year 2 Year 3 Year 4 Year 5 Net Cash Flow $10,000 $28,000 $55,000 $42,000 $111,000 (a) Compute the net present value of this investment.(b) Should the machinery be purchased?
A company has a capital employed of P 200,000. It has a cost of capital of 12% per year. Its residual income is P 36,000. What is the company’s return on investment? a. 30% b. 12% c. 18% d. 22%
2. Calculating Project NPV The Fleming Company is considering a new investment. Financial projections for the investment are tabulated below. 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. Investment Sales revenue Operating costs Depreciation Net working capital spending Year 0 $32,800 450 Year 1 Year 2 Year 3 Year 4 $14,200 2,100 8,200 175 $15,900 $15,700 2,100 2,100 8,200 8,200 250 275 $12,900 2,100 8,200 ? 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 12 percent. What is the NPV of the project?
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Assume the hiking shoes division of the all about shoes corporation had the following results last year (in thousands). Managements target rate of return is 15% and the weighted average cost of capital is 25%, it's effective tax rate is 30%.

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