****ANSWER TO PART ONE IS ABOVE. JUST NEED HELP WITH PART 2****

You bought a survey device at $560,000 at beginning of year 1. You expect to use it to generate an annual revenue of $420,000 for year 1 and increase at 5% per year. The operating expenses will be $ 215,000 for year 1 and increase at 3% per year. At end of year 3, you can sell the device for $280,000 and close the business. Assuming you will have an income tax rate of 30% every year and a capital gain tax rate of 20% at year 3 and you will take depreciation charge every year based on the MACRS schedule as follows:

Year 1 20%

Year 2 32%

Year 3 19.2%

Part 1:

Assuming all cash investment and using a MARR of 15%, what is the Net Present Value of this 3-year business and what is the IRR? Show the results as formatted below: Years (1, 2, 3) Revenue Operating Expense EBITDA Depreciation Charge Taxable Income Tax @30% tax rate Net Income CFAT Also clearly show the calculations of each years Depreciation Charges, Cash Flow After Tax at Year 3 for selling of the device and calculations of the present value and IRR, separately.

Part 2:

Assuming you will obtain a bank loan of $320,000 at an interest rate of 5.25% per year. The loan requires interest payment only at end of each year and the loan principle is due at end of the 3rd year (like a bond arrangement). Everything else stays the same as Part 1. Re-calculate everything as you did in Part 1. Based on the result of Part 2 and an Incremental IRR analysis, make your recommendation as which way to go, Part 1 or Part 2, and explain how does financial leverage affect your decision in relation to the selection of this project?

Sales Price Base at end of each year MACRS Dpreciation 560,000 BV3 448,000 20.0% 112,000 Capital Gain Tax 20% 268,800 32.0% 179,200 CFAT 161,280 19.2% 107,520 420,000 441,000 463,050 5% Revenue 215,000 221,450 228,094 Operating Expense 3% EBITDA 205,000 219,550 234,957 Depreciation Charge 112,000 179,200 107,520 93,000 40,350 127,437 Taxable Income 27,900 Tax @30% tax rate 12,105 38,231 Net Income 28,245 89,206 65,100 CFAT 177,100 207,445 196,726 CF (560,000) 177,100 207,445 452,982 NPV MARR of 15% 48,701 RR 19.4% 280,000 161,280 118,720 23,744 256,256