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    Investments - Net Income/Cash Flow

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    The Best Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated below. Cash flows are in $ thousands and 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.

    Year 0 Year 1 Year 2 Year 3 Year 4
    Sales revenue 7,000 7,000 7,000 7,000
    Operating costs 2,000 2,000 2,000 2,000
    Investment 10,000
    Depreciation 2,500 2,500 2,500 2,500
    Net working capital 200 250 300 200 -
    (end of year)

    a. Compute the incremental net income of the investment for each year.
    b. Compute the incremental cash flows of the investments for each year.
    c. Suppose the appropriate discount rate is 12 percent. What is the NPV of the project?

    © BrainMass Inc. brainmass.com March 4, 2021, 8:02 pm ad1c9bdddf
    https://brainmass.com/business/accounting/139750

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    Year 0 Year 1 Year 2 Year 3 Year 4
    Sales revenue 7,000 7,000 7,000 7,000
    Less Operating costs 2,000 2,000 2,000 2,000
    Operating Profit 5,000 5,000 5,000 5,000
    Less Depreciation 2,500 2,500 2,500 2,500
    Profit before ...

    Solution Summary

    The solution calculates the cash flow for the investments for Best Manufacturing Company.

    $2.49

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