For this problem you will take the problem in picture 1 and 2 below and make the following changes. 1) Assume the expens

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For this problem you will take the problem in picture 1 and 2 below and make the following changes.
1) Assume the expense scenario (other income exists, no loss-forward)
2) NPV = $385.9
Cum Net Income = Cum ATCF, both at $823.7
Starting with a clean base model where the the time zero NPV = $385.9
How much more can this company pay for equipment and generate a zero After-Tax NPV?
3).
Starting with a clean base model where the time zero NPV = $385.9
What year one revenue will give the investor exactly a 15% return on his/her invested capital? Remember the revenues escalate into the future.
4).
Starting with a clean base model where the time zero NPV = $385.9
Year one is now today. Which means the time period zero costs are now sunk. However, right before receiving the income, spending the operating costs and taking all the deductions in year one someone offered to buy the business for $1,000.
Do you want to sell or continue with developing?
A7-2 A project manager is evaluating whether it is economical to develop a project requiring expenditures at time zero of $20,000 for land, $30,000 for inventory working capital, $80,000 for a steel building, $240,000 for equipment, and $60,000 for vehicles. Starting in year one the manager estimates that production will generate annual end-of-year escalated revenue of $500,000 with escalated operating costs of $300,000. Operating costs and revenue will both escalate at a compound interest rate of 10% per year beginning in year two. Use straight-line depreciation over 39 years for the building cost starting in year one assuming 12 months of service when computing your allowable deduction in year one under the mid-month con- vention. Use 7-Year MACRS depreciation rates for the qualifying equipment cost starting in year one with the half-year convention and the 5-Year MACRS rates for the vehicle cost, again, starting in year one with the half-year convention. The effective combined federal and state income tax rate is 25%. No other income exists against which to utilize deductions so carry any losses forward.
B) a Calculate the project cash flows for the first four years of this business and also consider the after-tax cash flow that would be realized if the business were to be sold at the end of year four for a sale value of $600,000. Write off all remaining tax book values at the end of year four to deter- mine taxable gain (or loss) and treat the sale as ordinary income. For a minimum after-tax rate of return of 15%, calculate the overall project after-tax NPV, DCFROR, and PVR. a
0 1 2 10.08 10.08 10.08 10.08 Auxiliary Problem 7-2A, Values in 000s Year Sale Value Annual Revenue Escalation Annual Operating cost Escalation Revenue Operating costs Building (80.00) Equipment (240.00) Vehicles (60.00) Land (20.00) Working Capital (30.00) 600 10.08 10.02 0.04 0.04 500 (300) 1 3 2 550.0 500.0 605.0 (300.0) (2.0) (34.3) (12.0) (330.0) (2.1) (58.8) (19.2) (363.0) (2.1) (42.0) (11.5) Year Gross Revenue Sale of Business - Operating costs - Building, SL 39-Years, Mid Month - Equipment, MACRS 7-Year, Table 7-3 - Vehicles, MACRS 5-Year, Table 7-3 - Land (Write-off) - Working Capital (W-o) Taxable Income Tax @ 25% Net Income + Building, SL 39-Years, Mid Month + Equipment, MACRS 7-Year, Table 7-3 + Vehicles, MACRS 5-Year, Table 7-3 + Land (Write-off) + Working Capital (W-0) - Building (Deprec. SL) - Equipment (Deprec. DB) - Vehicles (Deprec. DB) - Land (Write-off) Working Capital (W/O) ATCE 154 Net Present Value ROR PVR 151.7 (37.9) 113.8 2.0 34.3 12.0 140.0 (35.0) 105.0 2.1 58.8 19.2 186.5 (46.6) 139.8 2.1 42.0 11.5 4 Cumulative 665.5 2,321 600.0 600 (399.3) (1,392) (73.9) (80) (105.0) (240) (17.3) (60) (20.0) (20) (30.0) (30) 620.0 1,098 (155.0) (275) 465.0 824 73.9 80 105.0 240 17.3 60 20.0 20 30.0 30 (80) (240) (60) (20) (30) 711.2 824 (80.0) (240.0) (60.0) (20.0) (30.0) (430.0) 162.1 185.0 195.4 385.91 > 0, Accept 44% > 15%, Accept 0.90 > 0, Accept