2.Calculating Project NPV-The Best Manufacturing Company is considering a new investment.
Financial projections for the investment are tabulated here. The corporation tax rate is 34 percent.
Assume all sales revenue is received in cash,all operating costs and income taxes are paid in
cash,allcash flows occur at the end of the year All net working capital is recovered at the project.
Year0
Year1
Investment $16,000
]Sales REvenue
Operating costs
Depreciation
4,000 4,000
4,000
4,000
Net working capital
spending
200
250
300
200
?
a.Compute the incremental net income of the investment for each year
b. compute et iincremental cash flows of the investment for each nyear.
c.Suppose the appropriate discount rate is 12 percent What is the NPV of th project?
3,Calculating Project NPV Down Under Boomerang INC>< is considering a three year expansion
project that requires an intial fixed assestment of 2.4 million. THe fixed asset investment of 2.4
million.The fixed asset will be depreciated straight-line to zero over its three year tax life after which
it will be worthless. The project is estimated to generate $2,050,000 in annual sales,with costs of
$950,000. THE TAX RATE IS 35 PERCENT AND the required return rate is 12 perc ent. What is
the project NPV?
4. Calculating Project Cash flow from Assets In the previous problem,suppose the project requires an
intial investment in net working capital of $285,000AND THE FIXED asset will have a market value
of $225,000at the end of the project?What is the project yearyear 0 net cash flow? Year1 year2 year 3
what is new NPV?
$ 8,500
1,900