ACCT1020: Evaluation of an Investment Project -With Taxes Practice Problem II You are considering opening a new bar on Main Street. The initial necessary investment is $750,000. This investment has a projected salvage (or residual) value for tax purposes of $250,000. The govemment requires depreciating the remaining $500,000 using the straight-line method over 10 years. You expect that the bar will generate cash flows of $900,000 in revenue, $450,000 in variable costs, and $225,000 in fixed costs Required: 1. Create a Contribution Margin Income Statement for the first year of operations. Assume the income tax rate is 25 % . 2. Assume you can sell the bar for $600,000 at the end of 10 years. Your required retum is 10%. What is the NPV of the investment in the bar? Based on NPV, should you invest in the bar? 3. Assume you can sell the bar for $150,000 at the end of 10 years. Your required return is 10%. What is the IRR of the investment in the bar? Based on IRR, should you invest in the bar? I ACCT1020: Evaluation of an Investment Project -With Taxes Practice Problem II You are considering opening a new bar on Main Street. The initial necessary investment is $750,000. This investment has a projected salvage (or residual) value for tax purposes of $250,000. The govemment requires depreciating the remaining $500,000 using the straight-line method over 10 years. You expect that the bar will generate cash flows of $900,000 in revenue, $450,000 in variable costs, and $225,000 in fixed costs Required: 1. Create a Contribution Margin Income Statement for the first year of operations. Assume the income tax rate is 25 % . 2. Assume you can sell the bar for $600,000 at the end of 10 years. Your required retum is 10%. What is the NPV of the investment in the bar? Based on NPV, should you invest in the bar? 3. Assume you can sell the bar for $150,000 at the end of 10 years. Your required return is 10%. What is the IRR of the investment in the bar? Based on IRR, should you invest in the bar