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.

Question

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Answer 1

Question

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 _I_n_i_t_i_a_l) =$300

Net working capital spending in Year 1 (NWC _Y_e_a_r₁) =$200

Net working capital spending in Year 2 (NWC _Y_e_a_r₂) =$225

Net working capital spending in Year 3 (NWC _Y_e_a_r3) =$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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National Bank currently has $500 million in transaction deposits on its balance sheet. The current reserve requirement is 10 percent, but the Federal Reserve is decreasing this requirement to 8 percent. Show the balance sheet of the Federal Reserve and National Bank if National Bank converts all excess reserves to loans, but borrowers return only 50 percent of these funds to National Bank as transaction deposits. Show the balance sheet of the Federal Reserve and National Bank if National Bank converts 75 percent of its excess reserves to loans and borrowers return 60 percent of these funds to National Bank as transaction deposits.

The FOMC has instructed the FRBNY Trading Desk to purchase $500 million in U.S. Treasury securities. The Federal Reserve has currently set the reserve requirement at 5 percent of transaction deposits. Assume U.S. banks withdraw all excess reserves and give out loans. What is the full effect of this purchase on bank deposits and the money supply if borrowers return only 95 percent of these funds to their banks in the form of transaction deposits?

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Answer 2

Question

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 _I_n_i_t_i_a_l) =$300

Net working capital spending in Year 1 (NWC _Y_e_a_r₁) =$200

Net working capital spending in Year 2 (NWC _Y_e_a_r₂) =$225

Net working capital spending in Year 3 (NWC _Y_e_a_r3) =$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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Answer 3

Question

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 _I_n_i_t_i_a_l) =$300

Net working capital spending in Year 1 (NWC _Y_e_a_r₁) =$200

Net working capital spending in Year 2 (NWC _Y_e_a_r₂) =$225

Net working capital spending in Year 3 (NWC _Y_e_a_r3) =$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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Answer 4

Question

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 _I_n_i_t_i_a_l) =$300

Net working capital spending in Year 1 (NWC _Y_e_a_r₁) =$200

Net working capital spending in Year 2 (NWC _Y_e_a_r₂) =$225

Net working capital spending in Year 3 (NWC _Y_e_a_r3) =$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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Answer 5

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 _I_n_i_t_i_a_l) =$300

Net working capital spending in Year 1 (NWC _Y_e_a_r₁) =$200

Net working capital spending in Year 2 (NWC _Y_e_a_r₂) =$225

Net working capital spending in Year 3 (NWC _Y_e_a_r3) =$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.

Answer 6

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.

Answer 7

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.

Answer 8

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 _I_n_i_t_i_a_l) =$300

Net working capital spending in Year 1 (NWC _Y_e_a_r₁) =$200

Net working capital spending in Year 2 (NWC _Y_e_a_r₂) =$225

Net working capital spending in Year 3 (NWC _Y_e_a_r3) =$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.

Answer 9

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 _I_n_i_t_i_a_l) =$300

Net working capital spending in Year 1 (NWC _Y_e_a_r₁) =$200

Net working capital spending in Year 2 (NWC _Y_e_a_r₂) =$225

Net working capital spending in Year 3 (NWC _Y_e_a_r3) =$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.

Answer 10

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.

Answer 11

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.

Answer 12

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Answer 13

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Answer 14

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Answer 15

Ch. 6 - Opportunity Cost In the context of capital...Ch. 6 - Prob. 2CQ Ch. 6 - Incremental Cash Flows Your company currently...Ch. 6 - Depreciation Given the choice, would a firm prefer...Ch. 6 - Prob. 5CQ Ch. 6 - Prob. 6CQ Ch. 6 - Equivalent Annual Cost When is EAC analysis...Ch. 6 - Prob. 8CQ Ch. 6 - Capital Budgeting Considerations A major college...Ch. 6 - To answer the next three questions, refer to the...

Solution Summary: The author calculates the incremental net income of investment for each year using an income statement.

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Chapter 6 Solutions