The Fancy Manufacturing Company is considering a new investment. Financial projections for theinvestment are tabulated here. The corporate tax rate is 21 percent. Assume all sales revenue is received incash, 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 1Year 2a.InvestmentSales revenueOperating costsDepreciationNet working capital spending 305Year 0$ 26,400C.$ 13,5002,9506,600205Year 3$15,1003,125 4,3006,6006,600235$16,500155Year 4$13,0002,9006,600?Compute the incremental net income of the investment for each year. (Do not round intermediatecalculations and round your answers to the nearest whole number, e.g., 32.)Compute the incremental cash flows of the investment for each year. (A negative amount should beb. indicated by a minus sign. Do not round intermediate calculations and round your answers to thenearest whole number, e.g., 32.)Suppose the appropriate discount rate is 9 percent. What is the NPV of the project? (Do not roundintermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

The net income will be found after deducting taxes from the amount that is taxable. The taxable…

Answered: The Fancy Manufacturing Company is…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 6P

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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 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. Year 0 Year 1 Year 2 Year 3 Year 4 Investment $ 34,000 Sales revenue $ 17,500 $ 18,000 $ 18,500 $ 15,500 Operating costs 3,700 3,800 3,900 3,100 Depreciation 8,500 8,500 8,500 8,500 Net working capital spending 400 450 500 400 ? a. Compute the incremental net income of the investment for each year. (Do not round intermediate calculations.) b. Compute the incremental cash flows of the investment for each year. (Do not round intermediate calculations. A…
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