a.
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
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.
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.
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:
Introduction: Net present value is the difference between the aggregate
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Chapter 6 Solutions
Corporate Finance
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