The Best Manufacturing Company is considering a new investment. Financial projec
ID: 2645496 • 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.
Net working capital spending
Compute the incremental net income of the investment for each year. (YEAR 1, 2, 3, and 4)
Compute the incremental cash flows of the investment for each year. (Year 0-4)
Suppose the appropriate discount rate is 15 percent. What is the NPV of the project?
THANK YOU SO MUCH!
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.
Explanation / Answer
Answer :-
1.) Calculate Incremental Net-Income of the Investment
2.) Calculate Incremental Cash Flows Of The Investment
Total Cash Flow = Cash flow from Operating Activity - Investment - Change in net working capital
3.) Calculate Net Present Value
Investment = 14040
NPV = Present Value - Investment
= 17637 - 14040
= 3597
Year 1 2 3 4 Sale 8600 9000 10400 7400 Less:- Operating Cost 1200 1100 2100 1900 PBD (Profit Before Depreciation) 7400 7900 8300 5500 Less:- Depreciation 3475 3475 3475 3475 EBIT (Earning befor Interest & Tax) 3925 4425 4825 2025 Tax (31%) 1217 1372 1496 628 NET INCOME Of The Investment 2708 3053 3329 1397Related Questions
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