The Fleming Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated below. The corporate tax rate is 22 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 $ 41,000 Sales revenue $ 21,000 $ 21,500 $ 22,000 $ 19,000 Operating costs 4,400 4,500 4,600 3,800 Depreciation 10,250 10,250 10,250 10,250 Net working capital spending 470 520 570 470 ? a. Compute the incremental net income of the investment for each year. Year 1, Year 2, Year 3, Year 4 b. Compute the incremental cash flows of the investments for each year. Year 1, Year 2, Year 3, Year 4 c. Suppose the appropriate discount rate is 13%. 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 22 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 $ 41,000 Sales revenue $ 21,000 $ 21,500 $ 22,000 $ 19,000 Operating costs 4,400 4,500 4,600 3,800 Depreciation 10,250 10,250 10,250 10,250 Net working capital spending 470 520 570 470 ? a. Compute the incremental net income of the investment for each year. Year 1, Year 2, Year 3, Year 4 b. Compute the incremental cash flows of the investments for each year. Year 1, Year 2, Year 3, Year 4 c. Suppose the appropriate discount rate is 13%. What is the NPV of the project?
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter12: Capital Investment Analysis
Section: Chapter Questions
Problem 4TIF
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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 22 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 | $ | 41,000 | ||||||||
| Sales revenue | $ | 21,000 | $ | 21,500 | $ | 22,000 | $ | 19,000 | ||
| Operating costs | 4,400 | 4,500 | 4,600 | 3,800 | ||||||
| Depreciation | 10,250 | 10,250 | 10,250 | 10,250 | ||||||
| Net working capital spending | 470 | 520 | 570 | 470 |
?
|
a. Compute the incremental net income of the investment for each year.
Year 1, Year 2, Year 3, Year 4
b. Compute the incremental cash flows of the investments for each year.
Year 1, Year 2, Year 3, Year 4
c. Suppose the appropriate discount rate is 13%. What is the NPV of the project?
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