CAPITAL BUDGETING Upon completion of your Business Degree you decide you have the necessary skills to go into business for yourself. Consequently, you decide to open a golf driving range. You already own a large tract of land that you purchased in 2005 for $300,000 and that is currently worth $650,000. You would have to clear, level and sod the land, as well as install a sprinkler system, which would cost another $120,000. For tax purposes these costs will be written off over a five-year period (S/L). Installation of tee markers, mats and a sales office and storage building would cost another $100,000, which also will be written off over five years for tax purposes. A tractor with cage and ball retriever would cost approximately $15,000 and would be written off over 3 years. You estimate that in any given year the range will be open for 200 days and that in an average day there will be 100 buckets of balls sold at $10 per bucket. You will pay two employees a total of $65,000 per year to operate and maintain the facility, and another $5,000 in annual miscellaneous expenses can be expected. Additionally, the range will require an inventory of buckets and balls costing $10,000 now. The level of this inventory will increase by 10% per year, and you expect to recover 25 cents on the dollar in five years. (Note: you may assume the expenditure for balls is tax deductible.) In five years, you expect to close the range and sell the land for $1,100,000, net of the costs of razing the office and storage building. Your marginal tax rate is 30%. Based on the risk of the venture, you require a 16% rate of return on your investment. 1. Should you embark on this new venture? (hint: you will need to project the relevant cash flows out in time and then calculate the NPV) 2. What is the breakeven number of buckets per day?