Corporate Finance
Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
Question
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Chapter 6, Problem 2QAP

a.

Summary Introduction

Adequate information:

Initial investment= -$26,300

Sales revenue in Year 1=$13,400

Sales revenue in Year 2=$15,000

Sales revenue in Year 3=$16,400

Sales revenue in Year 4=$12,900

Operating costs in Year 1=$2,900

Operating costs in Year 2=$3,100

Operating costs in Year 3=$4,200

Operating costs in Year 4=$2,800

Depreciation in each year=$6,575

Initial net working capital spending=$300

Net working capital spending in Year 1=$200

Net working capital spending in Year 2=$225

Net working capital spending in Year 3=$150

Corporate tax rate= 22%

To compute: Incremental net income of investment for each year

Introduction: Net income is the difference between the operating revenue and operating expenses during a financial period. It is computed using an income statement. An income statement is one of the financial statements of a company, that is, prepared to determine the profitability for a period.

b.

Summary Introduction

Adequate information:

Initial investment= $26,300

Sales revenue in Year 1=$13,400

Sales revenue in Year 2=$15,000

Sales revenue in Year 3=$16,400

Sales revenue in Year 4=$12,900

Operating costs in Year 1=$2,900

Operating costs in Year 2=$3,100

Operating costs in Year 3=$4,200

Operating costs in Year 4=$2,800

Depreciation in each year=$6,575

Initial net working capital spending (NWC Initial) =$300

Net working capital spending in Year 1 (NWC Year1) =$200

Net working capital spending in Year 2 (NWC Year2) =$225

Net working capital spending in Year 3 (NWC Year3) =$150

Corporate tax rate= 22%

To compute: Incremental cash flows of investment for each year

Introduction: Cash flows represent the amount of cash received or paid by a business enterprise during a financial period. The cash flows are represented using a cash flow statement.

c.

Summary Introduction

Adequate information:

Initial investment= $26,300

Sales revenue in Year 1=$13,400

Sales revenue in Year 2=$15,000

Sales revenue in Year 3=$16,400

Sales revenue in Year 4=$12,900

Operating costs in Year 1=$2,900

Operating costs in Year 2=$3,100

Operating costs in Year 3=$4,200

Operating costs in Year 4=$2,800

Depreciation in each year=$6,575

Initial net working capital spending=$300

Net working capital spending in Year 1=$200

Net working capital spending in Year 2=$225

Net working capital spending in Year 3=$150

Corporate tax rate= 22%

Discount rate = 12%

To compute: Net present value

Introduction: Net present value is the difference between the aggregate cash inflows and aggregate cash outflows associated with an investment proposal.

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Chapter 6 Solutions

Corporate Finance

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