Assume the expense scenario (other income exists, no loss-forward)

NPV should = $385.9

Cumulative Net Income = Cumumlativ ATCF, both at $823.7

Using the data above please answer the following question:

Starting with a clean base model where the time zero NPV = $385.9

Year one is now today. Which means the time period zero costs are now sunk. However, right before receiving the income, spending the operating costs and taking all the deductions in year one someone offered to buy the business for $1,000.

Do you want to sell or continue with developing?

0 1 2 10.04 10.04 10.04 10.08 Auxiliary Problem 7-2A, Values in 000s Year Sale Value Annual Revenue Escalation Annual Operating cost Escalation Revenue Operating costs Building (80.00) Equipment (240.00) Vehicles (60.00) Land (20.00) Working Capital (30.00) 600 10.08 10.08 0.0 0.04 500 (300) 1 3 2 550.0 500.0 605.0 (300.0) (2.0) (34.3) (12.0) (330.0) (2.1) (58.8) (19.2) (363.0) (2.1) (42.0) (11.5) Year Gross Revenue Sale of Business - Operating costs - Building, SL 39-Years, Mid Month - Equipment, MACRS 7-Year, Table 7-3 - Vehicles, MACRS 5-Year, Table 7-3 - Land (Write-off) - Working Capital (W-0) Taxable Income Tax @ 25% Net Income + Building, SL 39-Years, Mid Month + Equipment, MACRS 7-Year, Table 7-3 + Vehicles, MACRS 5-Year, Table 7-3 + Land (Write-off) + Working Capital (W-0) Building (Deprec. SL) - Equipment (Deprec. DB) - Vehicles (Deprec. DB) - Land (Write-off) Working Capital (W/O) ATCE 15 Net Present Value ROR PVR 151.7 (37.9) 113.8 2.0 34.3 12.0 140.0 (35.0) 105.0 2.1 58.8 19.2 186.5 (46.6) 139.8 2.1 42.0 11.5 4 Cumulative 665.5 2,321 600.0 600 (399.3) (1,392) (73.9) (80) (105.0) (240) (17.3) (60) (20.0) (20) (30.0) (30) 620.0 1,098 (155.0) (275) 465.0 824 73.9 80 105.0 240 17.3 60 20.0 20 30.0 30 (80) (240) (60) (20) (30) 711.2 824 (80.0) (240.0) (60.0) (20.0) (30.0) (430.0) 162.1 185.0 195.4 385.91 > 0, Accept 44% > 15%, Accept 0.90 > 0, Accept 0 1 2 10.04 10.04 10.04 10.08 Auxiliary Problem 7-2A, Values in 000s Year Sale Value Annual Revenue Escalation Annual Operating cost Escalation Revenue Operating costs Building (80.00) Equipment (240.00) Vehicles (60.00) Land (20.00) Working Capital (30.00) 600 10.08 10.08 0.0 0.04 500 (300) 1 3 2 550.0 500.0 605.0 (300.0) (2.0) (34.3) (12.0) (330.0) (2.1) (58.8) (19.2) (363.0) (2.1) (42.0) (11.5) Year Gross Revenue Sale of Business - Operating costs - Building, SL 39-Years, Mid Month - Equipment, MACRS 7-Year, Table 7-3 - Vehicles, MACRS 5-Year, Table 7-3 - Land (Write-off) - Working Capital (W-0) Taxable Income Tax @ 25% Net Income + Building, SL 39-Years, Mid Month + Equipment, MACRS 7-Year, Table 7-3 + Vehicles, MACRS 5-Year, Table 7-3 + Land (Write-off) + Working Capital (W-0) Building (Deprec. SL) - Equipment (Deprec. DB) - Vehicles (Deprec. DB) - Land (Write-off) Working Capital (W/O) ATCE 15 Net Present Value ROR PVR 151.7 (37.9) 113.8 2.0 34.3 12.0 140.0 (35.0) 105.0 2.1 58.8 19.2 186.5 (46.6) 139.8 2.1 42.0 11.5 4 Cumulative 665.5 2,321 600.0 600 (399.3) (1,392) (73.9) (80) (105.0) (240) (17.3) (60) (20.0) (20) (30.0) (30) 620.0 1,098 (155.0) (275) 465.0 824 73.9 80 105.0 240 17.3 60 20.0 20 30.0 30 (80) (240) (60) (20) (30) 711.2 824 (80.0) (240.0) (60.0) (20.0) (30.0) (430.0) 162.1 185.0 195.4 385.91 > 0, Accept 44% > 15%, Accept 0.90 > 0, Accept