The Fancy Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated here. The corporate tax rate is 25 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 Year O $26,800 Year 1 $13,900 3,150 6.700 Year 2 $15,500 3,225 6700 Year 3 $16,900 4,700 Year 4 $13,400 3,300
The Fancy Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated here. The corporate tax rate is 25 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 Year O $26,800 Year 1 $13,900 3,150 6.700 Year 2 $15,500 3,225 6700 Year 3 $16,900 4,700 Year 4 $13,400 3,300
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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Am. 16.
Transcribed Image Text:The Fancy Manufacturing Company is considering a new investment. Financial
projections for the investment are tabulated here. The corporate tax rate is 25 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
Net income
Cash flow
Year 1
Year O
$26,800
NPV
Year 0
325
a. Compute the incremental net income of the investment for each year. (Do not round
intermediate calculations and round your answers to the nearest whole number,
e.g., 32.)
Year 2
Year 1
$13,900
3,150
6,700
225
Year 1
Year 3
Year 2
$ 15,500
3,225
6,700
275
Year 2
b. Compute the incremental cash flows of the investment for each year. (A negative
amount should be indicated by a minus sign. Do not round intermediate
calculations and round your answers to the nearest whole number, e.g., 32.)
Year 3
Year 4
$ 16,900
4,700
6,700
175
Year 4
$13,400
3,300
6,700
?
Year 3
c. Suppose the appropriate discount rate is 9 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.)
Year 4
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