P&K Co. is contemplating investing in a new product. This project costs $18 million to start...

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P&K Co. is contemplating investing in a new product. This project costs $18 million to start and it will be depreciated to zero over its life of 3 years. The project will immediately lower the firm's net working capital by $1 million and such cost will be replaced at the end of the project's life. The project will have no salvage value after 3 years. Net income of $15 million is expected to be earned annually over the life of the project. All revenues and costs will be received and paid in cash throughout the life of the project. The company is debt-free and is taxed at the 40% bracket. The appropriate discount rate is 10%. In the table below, indicate the amount of cash inflows (+ve) or outflows (-ve) for the items in each period and calculate the NPV. Reproduce the same table in the answer booklet. Mark "0" if the cash flow is zero. Show your steps for the NPV calculation. Net Capital Spending Operating Cash Flow Net Working Capital Net Present Value Year 0 Year 1 Year 2 Year 3 P&K Co. is contemplating investing in a new product. This project costs $18 million to start and it will be depreciated to zero over its life of 3 years. The project will immediately lower the firm's net working capital by $1 million and such cost will be replaced at the end of the project's life. The project will have no salvage value after 3 years. Net income of $15 million is expected to be earned annually over the life of the project. All revenues and costs will be received and paid in cash throughout the life of the project. The company is debt-free and is taxed at the 40% bracket. The appropriate discount rate is 10%. In the table below, indicate the amount of cash inflows (+ve) or outflows (-ve) for the items in each period and calculate the NPV. Reproduce the same table in the answer booklet. Mark "0" if the cash flow is zero. Show your steps for the NPV calculation. Net Capital Spending Operating Cash Flow Net Working Capital Net Present Value Year 0 Year 1 Year 2 Year 3

Answer rating: 100% (QA)

Year 0 Net Capital Spending 18 million Net Working Capital 1 million Total Cash Outflow ... View the full answer