Question

2. Pop's Pizzeria, based in Camden, NJ, currently has a taxable income of $400,000 annually. Pop is considering adding a pizza delivery service for two years. Pop will need to purchase a delivery car and hire a driver. He estimates that he can buy the car for $15,000 and sell it two years later for $10,000. A driver for the car will cost Pop $8,000, plus car expenses will cost Pop $6,000 per year. Pop estimates that his annual business revenues for delivery will be $20,000. (Ignore other costs associated with this extra delivery business, like more pizza dough, etc.) Pop pays 1.6% Camden City income tax, and 9% NJ State Income Tax. The Camden City tax rate is additive to the NJ State Income tax rate, and both are deductible for federal income taxes, which Pop also has to pay Pop's Pizzeria uses an After-Tax MARR of 12% and MACRS depreciation. Pop wants to know if he should buy the car and hire a driver in order to increase his business by $20,000 annually for the two years. Using the table on the next page, calculate the Post-tax Cash flow of the added delivery service and its NPV. (You can show your work on this page and the next page) (30 pts)

Answer 1

Answer:

0 Car Price Revenue Driver Expense Car Expense Depreciation EBT Tax @10.6% PAT Net Cash Flow15000562 MARR NPV 2 10000 20000 8000 6000 2500 3500 371 3129 15629 15000 20000 8000 6000 2500 3500 371 3129 12% 2485.24