Consider the example of Mezzo Diner in the text. Suppose that Mezzo qualifies for and decides to take advantage of a tax law that provides "bonus" depreciation on the investment. Assume that this allows Mezzo to deduct the cost of the investment, net of salvage value, in the first year of the investment. As a result, of course, no more depreciation is taken in years 2 through 5. Assume all other facts as in the text. UseExhibit A.2.

Required:

a.What is the net present value of the investment assuming full expensing in the first year?(Round PV factor to 3 decimal places.)

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Exhibit A.2 Cash Flow Schedule with Present Value Computations- Mezzo Diner Year 1 2 3 4 S 10 Annual cash flows 11 Operating cash flows 138,000 $ 138,000 $ 135,000 5 138,000 5 138,000 12 Depreciation tax shield 25,000 25,000 25,000 25,000 25,000 13 14 Disinvestment flows 15 Return of working capital 120,000 16 Proceeds on disposal 100,000 17 Total cash flows S 1720,000] $ 163,000 S 163,000 S 163,000 S 163,000 383,000 18 Present value factor 1,000 0.893 0.797 0.712 0.636 0.567 19 20 Discount rate 12% 21 22 Present value of inflows $712,355 $145,559 $129,911 $116,056 $103,658 $217,161 23 Less investment S [720,000) 24 Net present value 5 17,645