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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
The Dante Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated below. The corporate tax rate is 35 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.
| Â | Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | |||||
| Â Â Investment | $ | 38,000 | Â | Â | Â | Â | Â | Â | Â | Â |
| Â Â Sales revenue | Â | Â | $ | 19,500 | $ | 20,000 | $ | 20,500 | $ | 17,500 |
| Â Â Operating costs | Â | Â | Â | 4,100 | Â | 4,200 | Â | 4,300 | Â | 3,500 |
| Â Â Depreciation | Â | Â | Â | 9,500 | Â | 9,500 | Â | 9,500 | Â | 9,500 |
| Â Â Net working capital spending | Â | 440 | Â | 490 | Â | 540 | Â | 440 | Â | ? |
| Â | ||||||||||
| a. |
Compute the incremental net income of the investment for each year. (Do not round intermediate calculations.) |
| Â | Year 1 | Year 2 | Year 3 | Year 4 | |
| Â Â Net income | $ | $ | $ | $ | |
| Â | |||||
| b. |
Compute the incremental cash flows of the investment for each year. (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign.) |
| Â | Year 0 | Year 1 | Year 2 | Year 3 | Year 4 |
| Â Â Cash flow | $ | $ | $ | $ | $ |
| Â | |||||
| c. |
Suppose the appropriate discount rate is 13 percent. What is the NPV of the project? (Do not round intermediate calculations and round your final answer to 2 decimal places (e.g., 32.16).) |
| Â Â NPV | $ |
Â
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