Reference no: EM132755559
Question - The Freeman Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated below. The corporate tax rate is 40 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 0 $17,500 $18,000 $18,500 $15,500
Operating Costs 0 $3,700 $3,800 $3,900 $3,100
Depreciation 0 8,500 8,500 8,500 8,500
Net WC Spending 400 450 500 400 ?
Required -
a. Compute the incremental net income of the investment for each year.
b. Compute the incremental cash flows of the investment for each year.
c. Suppose the appropriate discount rate is 10 percent. What is the NPV of the project?
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