All Equity Alternative Changes 1. $20,000 new furnishings funded by $20,000 additional equity investment 2. Revenue increases 10% 3. 5 year straight-line depreciation on new investment 4. Additional payroll = $125/week (52 weeks/year) 5. Other operating expenses increase $1,400/year 6. No change to other direct expenses (except depreciation) 7. Income Taxes = 25% of Operating Income Does incremental income yield 15% on equity investment? 50% Equity + 50% Loan Alternative Changes 1. $20,000 new furnishings funded by $10,000 loan plus $10,000 additional equity investment 2. Revenue increases 10% 3. 5 year straight-line depreciation on new investment 4. Additional payroll = $125/week (52 weeks/year) 5. Other operating expenses increase $1,400/year 6. No change to other direct expenses (except depreciation) 7. Interest expense = 10% x $10,000 Loan 8. Income Taxes = 25% of Operating Income Does incremental income in either case yield 15% on equity investment