Question
Gaewelyn is considering opening a new business for a long-term care facility. The initial investment for the business is $650,000, which includes constructing the housing
Gaewelyn is considering opening a new business for a long-term care facility. The initial investment for the business is $650,000, which includes constructing the housing unit and purchasing other assets. For tax purposes, the projected salvage value of all the assets is $86,000. The government requires depreciating the assets using the straight-line method over the businesss life of 15 years. Gaewelyn is trying to estimate the net cashflows after tax for this business. She has already figured out that the business will generate an annual after-tax cash inflow of $85,000 from the operation. She now needs your help to estimate the net cash inflow that she will receive from selling the facility's assets at the end of 15 years. Gaewelyn's required return is 8%.
Required:
(1) Gaewelyn estimates that, if the economic is booming at the end of the 15 years, she can sell the assets for $124,000. Assuming the tax rate of 30%, what is the net after-tax cashflow Gaewelyn will receive from selling her assets at the end of 15 years? (Please round your answer to the nearest dollar.) $
(2) If Gaewelyn is able to sell her assets for $124,000, as mentioned in (1) above, what is the Internal Rate of Return (IRR) for Gaewelyns business? (Please round your answer to two decimal points, i.e., XX.XX%) %
(3) Gaewelyn estimates that, if the economy is in recess at the end of the 15 years, she can sell the assets for $56,000. Assuming the tax rate of 30%, what is the net after-tax cashflow Gaewelyn will receive from selling her assets at the end of 15 years? (Please round your answer to the nearest dollar.) $
(4) If Gaewelyn is able to sell her assets for $56,000, as mentioned in (3) above, what is the Net Present Value (NPV) for Gaewelyns business? (Please round your answer to two decimal points) $
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