The Fancy Manufacturing Company is considering a new investment. Financial projections for theinvestment are tabulated here. The corporate tax rate is 21 percent. Assume all sales revenue is received incash, 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 1Year 2a.InvestmentSales revenueOperating costsDepreciationNet working capital spending 305Year 0$ 26,400C.$ 13,5002,9506,600205Year 3$15,1003,125 4,3006,6006,600235$16,500155Year 4$13,0002,9006,600?Compute the incremental net income of the investment for each year. (Do not round intermediatecalculations and round your answers to the nearest whole number, e.g., 32.)Compute the incremental cash flows of the investment for each year. (A negative amount should beb. indicated by a minus sign. Do not round intermediate calculations and round your answers to thenearest whole number, e.g., 32.)Suppose the appropriate discount rate is 9 percent. What is the NPV of the project? (Do not roundintermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

The net income will be found after deducting taxes from the amount that is taxable. The taxable…

Answered: The Fancy 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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You have been asked to assess whether it makes sense for CASTEC INC. to invest in a new telecom investment. The initial investment is expected to be S 60 million and the project is expected to generate income for the next 10 years, with the income statement below providing a measure of revenues and expenses for the project. Revenues Cost of Goods Sold Operating Expenses Depreciation |EBIT |-Interest Expenses |EBT Taxes @ 30% Net Income $28,000,000 $12,000,000 $6,000,000 $5,000,000 $5,000,000 $2,000,000 $3,000,000 S 900,000 $2,100,000 If the cost of capital for CASTEC INC. is 12% should the company invest in this project? Show all your work and justify your recommendation to receive any credit.
2. Hobart Industries is trying to estimate its first-year operating cash flow (att-1) for a proposed project. The financial staff has collected the following information: Projected sales Operating costs Depreciation $3,000,000 1,200,000 450,000 330,000 Interest expense The company faces a 40% tax rate. What is the project's operating cash flow for the first year (t-13? a $1.260,000 b. $ 810,000 € $1,080,000 d. $1,500,000 $1,800,000
H3. Please show proper step by step calculation
Sales are 150,000. COGS are 100,000. SG&A Overhead is 20,000. Depreciation is 15,000. Interest Expense is 10,000. Capital Expenditures is 15,000. Net Working Capital is not expected to rise by 1,000. The tax rate is 20%. What is FCF?
Excel Online Structured Activity: Income and Cash Flow Analysis The Berndt Corporation expects to have sales of $11 million. Costs other than depreciation are expected to be 80% of sales, and depreciation expected to be $1.1 million. All sales revenues will be collected in cash, and costs other than depreciation must be paid for during the year. Brendt's federal-plus-state tax rate is 40%. Berndt has no debt. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. Open spreadsheet a. Set up an income statement. What is Berndt's expected net cash flow? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000. Round your answer to the nearest dollar. $ b. Suppose Congress changed the tax laws so that Berndt's depreciation expenses doubled. No changes in operations occurred. What is Berndt's expected net cash flow? Round your answer to the nearest…
Question 2 Consider a 100,000 sqf office building with the following cash flows: The gross rent in year 1 is $30/sqf/year and the rents are expected to grow at 2% per year. The operating expenses in the first year are $5/sqf/year and are expected to increase at 3% per year. There are no capital expenditures. All cash flows are in arrears. The discount rate for the property is 9%. a. What is the value of the building if the building will be held and rented indefinitely? What is the cap rate at time 0? b. What is the value of the building if the building is sold at the end of 10 years at a 8% cap rate? What is the cap rate at time 0?
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?
Question 3 A company has $20 million available to invest in new projects. There are three independent projects that it is considering. The after-tax cash flows of the projects are as follows: Project ABC Year 0 cash flow (20 million) (10 million) (10 million) Year 1 cash flow 20 million 8 million 6 million Year 2 cash flow 10 million 7 million 10 million Calculate the IRR, PI and NPV of each of the two-year projects and recommend which project(s) the company should invest in (and why). The company's cost of capital is 12%.
Finnegan Company plans to Invest In a new operating plant that Is expected to cost $500,000. The projected Incremental Income from the Investment Is as follows: Net Income Year After Tax 1 $30,000 $45,000 $50,000 $55,000 $40,000 $20,000 The unadjusted rate of return on the Inltial Investment would be approximately. Multiple Choice 80% 6.0%. 16.7% 48.0%
C) a decrease of $12 D) an increase of $60,000 20. In a particular year a certain investment project generated revenue of $200,000. Other expenses (excluding depreciation and interest expense) totaled $100,000. Depreciation expense was $50,000 and interest expense was $10,000. The firm faces a tax rate of 21%. What is the project's after-tax operating cash flow in this year? A) $89,500 B) $81,600 C) $129,000 D) $79,000 ting decision and must

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