Carlos owns and operates a restaurant. To help expand his business, Carlos is considering the feasibility of offering a wedding catering service. To open this service, Carlos needs a van to deliver his food to the various weddings. After doing some research and price-checking, he has found a suitable new van online costing $50,000. Carlos will make a 20% down payment and finance the rest of the van with an amortized loan over 7 years at a 7% interest rate. Carlos predicts that by catering approximately 8 weddings a year at about $4,000 per wedding, he will increase his operating receipts by $32,000 per year. However, his operating expenses such as food, fuel, labor and insurance will increase by approximately $20,000 per year. Carlos assumed a straight-line depreciation over 8 years and the life of the investment is 6 years. The terminal value of the van is $30,000 after the 6 years, and Carlos requires a pretax 9% rate of return to capital. The marginal tax rate over the next 7 years is 25%, the inflation rate is 2% and the risk premium is 0.5%.

What is the down payment on the van?

a.$10,000

b.$50,000

c.$12,500

d.$37,500

What is the after-tax nominal return for year 3?

a.$12,120

b.$9,550.87

c.$9,519.98

d.$9,711.33

What is the principal payment in year 2?

a.$9,023.8

b.$6,586.30

c.$7,014.40

d.$4,945.68

What is the Net Cash Flow before debt in year 1?

a.$10,769.90

b.$2,290.98

c.$2,306.73

d.$10,742.50

What is the Net Cash Flow after debt in year 1?

a.$10,769.90

b.$4,020.37

c.$2,306.73

d.$9,332.40