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. Investment Sales revenue Operating costs Depreciation Net working capital spending Net income $ Cash flow Year 1 3,975 $ $ Year 0 Year O 34,000 $ 400 a. Compute the incremental net income of the investment for each year. (Do not round intermediate calculations.) Year 1 Year 2 4,275 $ Year 1 $ 17,500 $ 18,000 3,700 3,800 8,500 8,500 450 500 5,300 Year 2 Year 3 4,575 $ 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.) Year 3 Year 2 3,100 $18,500 $15,500 3,900 8,500 8,500 400 ? Year 4 Year 4 2,925 Year 3 Year 4 c. Suppose the appropriate discount rate is 10 percent. What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

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. Investment Sales revenue Operating costs Depreciation Net working capital spending Net income $ Cash flow Year 1 3,975 $ $ Year 0 Year O 34,000 $ 400 a. Compute the incremental net income of the investment for each year. (Do not round intermediate calculations.) Year 1 Year 2 4,275 $ Year 1 $ 17,500 $ 18,000 3,700 3,800 8,500 8,500 450 500 5,300 Year 2 Year 3 4,575 $ 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.) Year 3 Year 2 3,100 $18,500 $15,500 3,900 8,500 8,500 400 ? Year 4 Year 4 2,925 Year 3 Year 4 c. Suppose the appropriate discount rate is 10 percent. What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

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 17E: Postman Company is considering two independent projects. One project involves a new product line,...

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