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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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