An accounting firm is considering expanding their operations into new office space so that they can hire
Question:
An accounting firm is considering expanding their operations into new office space so that they can hire more staff and expand their company. The new lease requires a 5-year commitment. If the firm expands its operations, profits are expected to increase by $250,000 during 2023 and then those additional profits should increase by 12% each year from 2024 to 2027. Leasehold improvements to move into the new office space will cost the firm $850,000 with an estimated useful life of 5 years.
5. Assuming that the lease requires a security deposit of $500,000 that is fully refundable at the end of the 5 years. Recalculate the NPV of the project. Hint: Think of the security deposit like working capital (15 words minimum 3 points). 6. (Ignore the security deposit from #5) Assume that the company pays corporate income taxes at a rate of 20%. Recalculate the NPV of the project assuming that the leasehold improvements will be depreciated using straight-line depreciation over a 5-year useful life with no salvage value. Does this change your recommendation in #4? Explain why or why not. (50 words minimum 5 points).