The Fleming Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated below. 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 3,975 $ $ Year 0 Year O 34,000 $ 400 a. Compute the incremental net income of the investment for each year. (Do not round intermediate calculations.) Year 1 Year 2 4,275 $ Year 1 $ 17,500 $ 18,000 3,700 3,800 8,500 8,500 450 500 5,300 Year 2 Year 3 4,575 $ b. Compute the incremental cash flows of the investment for each year. (Do not round intermediate calculations. A negative answer should be indicated by a minus sign.) Year 3 Year 2 3,100 $18,500 $15,500 3,900 8,500 8,500 400 ? Year 4 Year 4 2,925 Year 3 Year 4 c. Suppose the appropriate discount rate is 10 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.)
The Fleming Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated below. 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 3,975 $ $ Year 0 Year O 34,000 $ 400 a. Compute the incremental net income of the investment for each year. (Do not round intermediate calculations.) Year 1 Year 2 4,275 $ Year 1 $ 17,500 $ 18,000 3,700 3,800 8,500 8,500 450 500 5,300 Year 2 Year 3 4,575 $ b. Compute the incremental cash flows of the investment for each year. (Do not round intermediate calculations. A negative answer should be indicated by a minus sign.) Year 3 Year 2 3,100 $18,500 $15,500 3,900 8,500 8,500 400 ? Year 4 Year 4 2,925 Year 3 Year 4 c. Suppose the appropriate discount rate is 10 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.)
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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Transcribed Image Text:The Fleming Manufacturing Company is considering a new investment. Financial
projections for the investment are tabulated below. 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
NPV
3,975 $
$
Year 0
Year O
34,000
$
400
a. Compute the incremental net income of the investment for each year. (Do not round
intermediate calculations.)
Year 1
$ 17,500
3,700
8,500
450
Year 2
4,275 $
Year 1
5,300
$18,000
Year 2
Year 3
b. Compute the incremental cash flows of the investment for each year. (Do not round
intermediate calculations. A negative answer should be indicated by a minus sign.)
Year 3
4,575 $
Year 2
3,800 3,900
8,500
8,500
500
400
$18,500 $15,500
3,100
8,500
?
Year 4
Year 4
2,925
Year 3
Year 4
c. Suppose the appropriate discount rate is 10 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.)
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