Compute the incremental net income of the investment

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Reference no: EM133050151

Problem - The Fleming Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated below. The corporate tax rate is 22 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

$31,000

 

 

 

 

Sales revenue

 

$16,000

$16,500

$17,000

$14,000

Operating costs

 

3,400

3,500

3,600

2,800

Depreciation

 

7,750

7,750

7,750

7,750

Networking capital spending

370

420

470

370

?

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 11 percent. What is the NPV of the project?

Reference no: EM133050151

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