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 25% down payment and finance the rest of the van with an amortized loan over 5 years at a 6.5% 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 5 years. The terminal value of the van is $30,000 after the 5 years, and Carlos requires a pretax 9% rate of return to capital. The marginal tax rate over the next 7 years is 23%. (i) What is the appropriate discount rate to calculate the NPV in this problem? a.6.5\% b. 6.93% Enter response here (iii) What is the yearly allowable depreciation using the straight-line method? Enter response here Enter response here (vii) What is the maximum operating expense for food, fuel, labor and insurance that can be spent on this investment and still be a good investment. a. $22,630 b. $24,263 c. $27,506 d. $25,695 Enter response here 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 25% down payment and finance the rest of the van with an amortized loan over 5 years at a 6.5% 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 5 years. The terminal value of the van is $30,000 after the 5 years, and Carlos requires a pretax 9% rate of return to capital. The marginal tax rate over the next 7 years is 23%. (i) What is the appropriate discount rate to calculate the NPV in this problem? a.6.5\% b. 6.93% Enter response here (iii) What is the yearly allowable depreciation using the straight-line method? Enter response here Enter response here (vii) What is the maximum operating expense for food, fuel, labor and insurance that can be spent on this investment and still be a good investment. a. $22,630 b. $24,263 c. $27,506 d. $25,695 Enter response here
