8. Assume you are studying the possibility of a nightclub as the best use of land. Consider the following information. The building must be built from scratch. Construction expenses are 100,000 dollars and must be paid now (t-0). However, the construction will only be ready, and start generating income, tw years from now (t-2).

The income it will generate at t-2 is 300,000

The operating expenses will be 45% of the income generated. Therefore, the operating expenses are:

9. The net operating income is:

10.The depreciation is assumed to be 50,000 a year. Therefore, the taxable income is:

11.The developer is in the 30% marginal tax bracket. Thus , the amount of taxes will be:

12. Cash flow after taxes at t-2 is:

13. The discount rate is 10%. Thus, the present value of the cash flow (t-0) is: