Question

i need help to solve it and explanation how to get depreciation salvage value..

Please, i need help to solve it as possible with explanation. You next walk along Richmond Road towards games, but the concessions at Tribe Athletics wards the stadium, which acts you thinking about Tribe Athletics. To Athletics leaves something to be desired. You have a strong entrepreneurial spins and think that you could make money starting Starting your own alternative concessions service that offers William and Mary-themed food (e.g., TWOMP Tacos) and beverages (eg.. Tribe Bubble Tea). You paid $20.00 for a business plan last e n the plan and quickly develop the follow fou r oposal. Your concession stand would r a te investment of $300,000 for equipment estimate that your stand would generate 500.000 inwes in the each year. Your anal operating costs are to be of your sales. You need Sim olin i tely but y expect to recoup all of winycat Your equipment can be depreciated straight line to its salvage value of $50.000 over 4 years. The relevant corporate rate is 30%. Your required return is 2.5% A (5 pts) Using a discounted cash flow analysis, decide if you should undertake this business venture. R. (p) You forgot to account for the value of your own time. Assume your outside option is working at SWEM for $5,000 (after-tax) per year. Make an appropriate comparison between this job and the concessions venture and decide which is better from a financial perspective. To do this, use the EAA method. EAA NPV

Answer 1

A.
Calculation of Net Present Value (NPV) of Business Venture
Year	Particalars	Amount $	PVF @2.5%	Present Value
0	Initial Investment (Cash Outflow)	(310,000)	1.000	-310000
1	Cash Flow After Tax	75,450	0.976	73639
2	Cash Flow After Tax	75,450	0.952	71828
3	Cash Flow After Tax	75,450	0.929	70093
4	Cash Flow After Tax	75,450	0.906	68358
4	Salvage Value of Equipment	50,000	0.906	45300
4	Working Capital Recoup at the end	10,000	0.906	9060
	Net Present Value of Cash Flow			28278
	Since the NPV is Positive $ 28278 , so project can be accepted
B.	Yearly Earning from EAA Method
	From Business Venture = 28278/PVAF(2.5%, 4 Year)=		28278/3.762
	From Business Venture =	7517
	Revenue from the Job (after Tax)	5000
	Hence , Business Venture is better since it will give $7517 in compare to Job $ 5000

Working Note 1 : Calculation of Initial Investment
		Amount $
Equipment Cost	:	300,000
Working Capital	:	10,000
Initial Investment	:	310,000
Working Note 2 : Calculation of Depreciation
		Amount $
Equipment Cost	:	300,000
Salvage Value	:	50,000
Expected Life	:	4 years
				Amount $
Depreciation (SLM)	:	300000-50000	=	62500	per year

Working Note 3:
Statement Showing Discounted Annual Cashflow (Amount in $)
	Per Annum
Revenue	90,000
Less: Annual Operating Cost	9,000
(10% of Sale)
Less: Depreciation (PA) (Workig Note 2)	62,500
Profit Before Tax	18,500
Less : Tax @ 30%	5550
Profit After Tax	12,950
Add: Depreciation	62,500
Cash Flow After Tax	75,450

[Note: 1) Salvage value is not adjusted for Tax at the end of the projected , since the depreciation was already adjusted foe the salvage value]