Your company is undertaking a new project. A building was purchased 10yrs ago for $500,000 depreciated straight line to $50,000 (I,e the land value) over 30 yrs. It’s now worth $200,000.
The project requires improvements to the building of $100,000. The improvements are depreciated straight line to zero over the life of the project.
The project will generate revenues of $225,000, $250,000, $275,000 and $300,000 for yrs 1-4, respectively. Annual cash operating expenses are $80,000, $100,000, $120,000, and $140,000 respectively
The project will last 4 yrs, at which time the building will be sold for book value.
Taxes are 40% and rate of return is 10%.
Calculate the annual depreciation on the building and improvements.
Show projected annual income statements for years 1,2,3,4 (5pts)
What is (are) the relevant initial cost(s)?
What calculate the annual operating cash flow for years 1, 2, 3, 4?
What is the salvage value of the building at the end of the project?
What are the total relevant cash flows for year 0, 1, 2, 3, 4?
How would you represent the calculation for NPV in algebraic terms?
Calculate Average Accounting Return / Accounting rate of return?