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8-2 NPV is in cash, all operating costs and income taxes are paid in and all cash flows occur at the end of the year All net at the end of the project 7,80e 7,8ee ,ee0 ь, с Do not round intermediate calculations and Next>

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Answer #1

Answer a:

Year 1 Year 2 Year 3 Year 4 Net Income2,$3,1683,432 1,980

Workings:

Year Investment Sales Revenue Operating cost Depreciation Incremental income before tax Tax at 34% Incremental Net Income before tax 0 2 4 $28,000 $14,500 $15,000 $15,500 $12 $3,100$3 $7,000 $4,400$4,800$5,200$3,000 1,496-$1,632$1,768$1,020 $2,904 $7,000-S,000$7.000 $3,168 $3,432 32 $1,980

Answer b:

Year 0 Year 1 Year 2 Year 3 Year 4 Cash flow -28,340$9,854 $10,118 10,5329,320

Workings:

Year Investment Sales Revenue Operating cost Depreciation Incremental income before tax Tax at 34% Incremental Net Income before tax Add back depreciation Net Working capital spending Increase in net working spending Cash flow 0 2 4 $28,000 $14,500$15 $15,500$12,500 3,300-$2500 $7.000-$7,0007,000 $3, $4,400 $4,800$ $2,904 100$3,200 $5,200$3,000 $1,496 -$1,632 -$1,768-$1,020 $3,432 32 $1,980 $7,000$7,000$7,000 $7,000 $3,168 $390 $50 $A40 S50 $340 $100 340 $340 $28,340$9,854$10,118$10,532$9,32(0 340

Answer c:

NPV of the project = $1,943.72

Workings:

Year Investment Sales Revenue Operating cost Depreciation Incremental income before tax Tax at 34% Incremental Net Income before tax Add back depreciation Net Working capital spendin Increase in net working spending Cash flow PV Factors [1/(1+12%)^Year] Discounted cash flow NPV 0 2 4 $28,000 $15,000 $12,500 3,200-$3,300 $2,500 $14,500 $15,500 $3,100 $7,0007,000$7,000$7,000 $4,400$4,800$5,200$3,000 1,4961,632-$1,768$1,020 $2,904 $7,000 $7,000 $7,000 s7 $3,168 $3,432 32 $1,980 S390 -340 -340 $28,340 $340 $10,118$10,532$9,320 0.71178 0.63552 $A40 $50 S340 $100 $50 1 0.892 286 0.79719 $28,340.00 $8,798.21 $8,066.01$7,49 6.47 $5,923 $1,943.72

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