Problem
Polaris Inc. decides to upgrade a new assembly line to increase productivity. This upgrade requires an initial investment of $3,200,000 and will generate $850,000 revenue in year 1 of operation. The system will incur $250,000 in maintenance expenses in the first year. The investment cost of all the equipment necessary for upgrading is classified as a 5-year MACRS property for depreciation purposes. The expected salvage value of all the equipment is $200,000 at the end ofthe project life. The firm pays taxes at a rate of 25% and has a MARR of 18%. The assembly lines have a 6-year life. Revenues for operation will increase at 5% each year and expenses will increase at 3% each year. A loan is to be taken out for 28% of the initial investment amount. The loan will be repaid over the project life in yearly payments, at an annual interest rate of 15%. Calculate the followings:
a) Determine the allowed depreciation amounts.
b) Calculate the repayment schedule of the loan.
c) Calculate the Gains/Losses associated with Asset Disposal.
d) Create the Income Statement.
e) Develop a Cash Flow Statement.