Compute the incremental net income of the investment

Assignment Help Corporate Finance

Reference no: EM132368587

Corporate Finance Questions -

Question 1 - Explain the following with examples

a. Opportunity cost

b. Sunk Cost

c. Salvage Value

d. Nominal Vs real cash flow

Question 2 - The Best Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated here. The corporate tax rate is 34 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	$24000
Sales revenue		$12500	$13,000	$13,500	$10,500
Operating costs		2,700	2,800	2,900	2,100
Depreciation		6,000	6,000	6,000	6,000
Net working capital	300	350	4000	300	?

a. Compute the incremental net income of the investment for each year.

b. Compute the incremental cash flows of the investment each year.

c. Suppose the appropriate discount rate is 12 percent. What is the NPV of the project?

Question 3 - Pilot Plus Pens is deciding when to replace its old machine. The machine's current salvage value is $2.2 million. Its current book value is $1.4 million. If not sold, the old machine will require maintenance costs of $845,000 at the end of the year for next five years. Depreciation on the old machine is $280,000 per year. At the end of 5 years, it will have a salvage value of $120,000 and a book value of $0. A replacement machine costs $4.3 million now and requires maintenance costs of $330,000 at the end of year during its economic life of 5 years. At the end of five years, the new machine will have a salvage value of 800,000. It will be fully depreciated by the straight-line method. In five years a replacement machine will cost $3,200,000. Pilot will need to purchase this machine regardless of what choice it makes today. The corporate tax is 40 percent and the appropriate discount rate is 8 percent. The company is assumed to earn sufficient revenues to generate tax shields from depreciation. Should Pilot plus Pens replace the old machine now or at the end of 5 years?

Reference no: EM132368587

Questions Cloud

What type of company or product : What type of company or product uses just in time ordering?

How politics in health care organization motivates employees : Assess how politics in a health care organization motivates and demotivates employees, and recommend strategies to mitigate the challenges presented with each.

Calculate the percentage change in EPS : Calculate earnings per share, EPS, under each of the three economic scenarios before any debt is issued. Also calculate the percentage change in EPS

How would interpret the myths and realities of older adults : Throughout this course we examined development through the lens of the life-span. For this week we took a closer look at older adults. The perceptions.

Compute the incremental net income of the investment : The Best Manufacturing Company is considering a new investment. Compute the incremental net income of the investment for each year

Without a successful year from our sales? team : After? all, our sales team brings in? revenue, and without revenue the company would not be able to function.

Explain investment appraisal techniques - Payback Period : Explain the Net Present Value and Payback Period investment appraisal techniques and discuss their decision criteria

Most strongly suggested by the statements? above : Which of the following is most strongly suggested by the statements? above?

What does a formal grievance procedure usually involve : What does a formal grievance procedure usually involve?

User Account

All Pages