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. Year 0 Year 1 Year 2 Year 3 Year 4 Investment $ 34,000 Sales revenue $ 17,500 $ 18,000 $ 18,500 $ 15,500 Operating costs 3,700 3,800 3,900 3,100 Depreciation 8,500 8,500 8,500 8,500 Net working capital spending 400 450 500 400 ? a. Compute the incremental net income of the investment for each year. (Do not round intermediate calculations.) 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.) c. Suppose the appropriate discount rate is 10 percent. What is the NPV of the project?
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. Year 0 Year 1 Year 2 Year 3 Year 4 Investment $ 34,000 Sales revenue $ 17,500 $ 18,000 $ 18,500 $ 15,500 Operating costs 3,700 3,800 3,900 3,100 Depreciation 8,500 8,500 8,500 8,500 Net working capital spending 400 450 500 400 ? a. Compute the incremental net income of the investment for each year. (Do not round intermediate calculations.) 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.) c. Suppose the appropriate discount rate is 10 percent. What is the NPV of the project?
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 4CE: Manzer Enterprises is considering two independent investments: A new automated materials handling...
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| 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. |
| Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | ||||||
| Investment | $ | 34,000 | ||||||||
| Sales revenue | $ | 17,500 | $ | 18,000 | $ | 18,500 | $ | 15,500 | ||
| Operating costs | 3,700 | 3,800 | 3,900 | 3,100 | ||||||
| Depreciation | 8,500 | 8,500 | 8,500 | 8,500 | ||||||
| Net working capital spending | 400 | 450 | 500 | 400 | ? | |||||
| a. | Compute the incremental net income of the investment for each year. (Do not round intermediate calculations.) |
| 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.) |
| c. | Suppose the appropriate discount rate is 10 percent. What is the |
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