The Best Manufacturing Company is considering a new investment. Financial projec
ID: 2346032 • Letter: T
Question
The Best Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated here. The corporate tax rate is 31 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 $ 18,100
Sales revenue $ 9,100 $9,700 $9,600 $7,100
Operating costs 1,200 1,800 1,700 1,600
Depreciation 4,525 4,525 4,525 4,525
Net working capital spending
180 230 280 180 ?
Requirement 2:
Compute the incremental cash flows of the investment for each year. Negative amounts should be indicated by a minus sign.)
Incremental cash flow
Year 0 $
Year 1 $
Year 2 $
Year 3 $
Year 4 $
Explanation / Answer
Year 0
Year 1
Year 2
Year3
Year4
Sales revenue
$ 9,100
$ 9,700
$ 9,600
7100
Operating costs
1200
1800
1700
1600
depreciation
4525
4525
4525
4525
Income tax before tax
1- (2+3)
3375
3375
3375
975
Tax-31 percent.
1046.25
1046.25
1046.25
302.25
Net income
2328.75
2328.75
2328.75
672.75
Year 0
Year 1
Year 2
Year3
Year4
Sales revenue
$ 9,100
$ 9,700
$ 9,600
7100
Operating costs
1200
1800
1700
1600
depreciation
4525
4525
4525
4525
Income tax before tax
1- (2+3)
3375
3375
3375
975
Tax-31 percent.
1046.25
1046.25
1046.25
302.25
Net income
2328.75
2328.75
2328.75
672.75
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