4. Roman Gardens is a famous upscale Italian restaurant operating is the little Italy area of Dallas, TX. It is part of certain large corporation known for gourmet international foods. It is headquartered in Chicago, IL and has several upscale restaurants (of international flavor) located in major cities throughout the world. The parent corporations composite tax rate is 38%; Before Tax Cost of Capital is 20%, & Capital Gains Tax Rate is 20%. Roman Gardens is thinking of replacing existing kitchen equipment purchased few years ago with similar newer equipment. The replacement does not result in any increase in annual revenue. The information pertaining to the Defender and the Challenger are given below. Defender The defender was bought four years ago for $340,000. The firm began depreciating it immediately using 7-year MACRS method. The current market value of the defender is $80,000. Estimated future market values are listed below. Market Value, one year from today is estimated to be $40,000. Market Value, two years from today is estimated to be $15,000. Market Value, three years from today (and beyond) is estimated to be $0 The defender equipments maintenance charge for the next year is estimated to be $20,000. Because of the age of the equipment the maintenance charges are expected to grow at an abnormal rate of 25% per year. Challenger The challenger is a new similar equipment that costs $310,000. The item can be depreciated using 5-year life MACRS method. Estimated future market values are listed below. Market Value, one year from today is estimated to be $260,000. Market Value, two years from today is estimated to be $210,000. Market Value, three years from today is estimated to be $170,000. Market Value, four years from today is estimated to be $130,000. Market Value, five years from today is estimated to be $100,000 Market Value, six years from today is estimated to be $65,000 Market Value, seven years from today is estimated to be $50,000 Market Value, eight years from today is estimated to be $10,000 The challengers maintenance charge for the first three years is estimated to be $0 covered under warranty. The maintenance charges for the 4th year is estimated to be $8,000. It is expected to grow at 7% per year. You need to compute the Net Annual Value (NAV) if the Asset is held for 1 year, 2 years, etc. Fill in the answers in the table below. Do After Tax Cash Flow Analysis only. Use the template provided. 1 year 2 years 3 years 4 years 5 years 6 years 7 years 8 years Defender Challenger What is your decision? Would you replace it? What is the rationalization behind your decision?

	1 year	2 years	3 years	4 years	5 years	6 years	7 years	8 years
Defender
Challenger