Question

CALCULATING PROJECT INCREMENTAL CASH FLOWS AND NPV: Atlantic Manufacturing is considering a new investment project

that will last for four years. The delivered and installed cost of the machine needed for the project is $22252 and it will be depreciated according to the three-year MACRS schedule. The project also requires an initial increase in net working capital of $306. Financial projections for sales and costs are in the table below. In addition, since sales are expected to fluctuate, NWC requirements will also fluctuate. The end-of-year NWC requirements are included below (hint: these NWC capital requirements DO NOT represent the change in NWC for the period, they represent the end-of-year balance. You must calculate the change in NWC for each period). The $0 requirement for NWC at the end of year 4 means that all NWC is recovered by the end of the project The corporate tax rate is 35% and the required return on the project is 12%.

What is the incremental net income of the project for each year? (Round answers to 2 decimal places, round intermediate calculations to 5 decimal places)

What are the incremental cash flows of the project for each year? (Round answers to 2 decimal places, round intermediate calculations to 5 decimal places. When using previous answers, use the rounded answer as it was given in the answer box)

What is the project’s NPV? (Round answer to 2 decimal places, round intermediate calculations to 5 decimal places. When using previous answers, use the rounded answer as it was given in the answer box)

Net Income Year 1

Net Income Year 2

Net Income Year 3

Net Income Year 4

Cash Flow Year 0

Cash Flow Year 1

Cash Flow Year 2

Cash Flow Year 3

Cash Flow Year 4

NPV

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