The Best Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated here. The corporate tax rate is 23 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 $27,600
Sales revenue $14,700 $16,300 $17,700 $14,200
Operating costs 3,550 3,425 5,500 4,100
Depreciation 6,900 6,900 6,900 6,900
Net working capital
spending 365 265 355 215
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?