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
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).
Can you please solve the answer 6 only?
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