How do you compute a depreciation schedule for point 3 and 4. Please include all calculation details.

Thank you!

1. Market Testing: JB Hi Fi has already spent (and expensed) $0.8 million on a market study which has provided JB Hi Fi with a sense of the magnitude of this market, and JB Hi Fi's potential in the market.

2. Starting Investment: To get established in the hardware business, JB Hi Fi will spend $100 million immediately to acquire interests in a number of household hardware manufacturers in Australia. This investment will be depreciated over ten years, using straight line depreciation, starting in year 2.

3. Close, revamp & reopen - The Recycled stores: The first Home stores are expected to be operational in year 2. To accommodate this schedule, JB Hi Fi will spend $100 million in year 1 to convert 10 existing JB Hi Fi store sites into Home stores. This investment will be capitalised and depreciated over ten years, using straight-line depreciation as well, starting in year 2. JB Hi Fi stores chosen for conversion have been poorly performing stores; they are expected to each generate, on average, $0.8 million in after-tax operating income each year if they remain as traditional JB Hi Fi stores.

4. New Stores: Starting in year 2, JB Hi Fi plans to open 5 new home hardware stores (each year) for 5 years (Years 2-6). The cost of opening a store is expected to be $10 million in year 2, and grow at the inflation rate (2%) beyond that. Like the other capital investments, these expenses will be depreciated using straight-line depreciation over ten years, starting at the year after the year of each investment.

5. Store Economics: Each of the stores in the first year of operations (year 2) is expected to generate $4 million in revenues, and these per-store revenues are expected to grow at the inflation rate (which is 2%). Note that stores only generate revenues in the following year after they open. For example, the stores open in year 2 only generaterevenue in year 3.

6. Costs of goods sold: The costs of goods sold at Home stores are expected to be 50% of revenues.

7. Advertising: JB Hi Fi spent $80 million in advertising expenses in the most recent year and expects these expenses to grow 2% a year in the future, if the home hardware division is not created. If the home hardware division is added to the company, the total advertising costs will be 10% higher than they would have been without the home hardware division each year from year 2 (the first year of sales for the division) for as long as the home hardware division is in operation.

8. Allocated costs: JB Hi Fi will allocate 10% of its existing G&A costs to the new division, starting in year 2. These costs now total $20 million for the entire firm and are expected to grow 5% a year in the long term. Specific to this project, it is expected that JB Hi Fi will have an increase of $1.5 million in general and administrative costs in year 2 when the new division starts generating revenues, and that this amount will grow with the new division's revenues after that.

9. Working Capital: The home hardware division will create working capital needs, which you have estimated as follows:

? The sale of home hardware on credit to customers will create accounts receivable amounting to 10% of revenues each year.

? Inventory (of home hardware) will be approximately 10% of the cost of goods sold (not including depreciation, allocations or advertising expenses).

? The credit offered by suppliers will be 5% of the cost of goods sold (not including depreciation, allocations or advertising expenses).

? Assume that JB Hi Fi pays taxes on time and there is no overdue amount in taxes payable.

10. Side Benefits: If JB Hi Fi opens the home hardware stores, there is the potential for a spill over benefits with its existing stores, where customers from the home hardware stores increasing sales at JB Hi Fi's existing stores. JB Hi Fi expects to generate about $10 million in additional revenues at its existing stores in in year 2, growing at the inflation rate for as long as the home hardware stores continue in operation. JB Hi Fi expects to generate the same EBIT to Revenue margin on these revenues as it did on its revenues in the fiscal year ended June 2019 (in Exhibit 1).

11. Financing: The current D/E ratio is 20%. The current debt rating for JB Hi Fi is A. JB Hi Fi expects to finance the home hardware division using a mix of equal debt and equity to finance the new project.

12. Taxes: JB Hi Fi's marginal tax rate is 30%.

13. Macro Data: The expected inflation rate is 2%.

Exhibit 1: Income Statements for JB Hi Fi ($ amounts are in millions) 06/15 06/16 06/17 06/18 06/19 Revenue $3652.77 $3955.01 $5630.00 $6855.40 $7097.70 Operating Expenses -$3411.07 -$3691.79 -$5268.00 -$6443.20 -$6669.40 EBITDA $241.70 $263.23 $362.00 $412.20 $428.30 Depreciation and Amortisation -$39.12 $40.90 -$53.90 -$60.40 -$54.70 EBIT $202.58 $222.32 $308.10 $351.80 $373.60 Interest Expense -$5.93 -$3.86 -$10.70 -$16.60 -$14.30 EBT Excl Abnormals $196.65 $218.47 $297.40 $335.20 $359.30 Tax Expense -$59.02 -$65.66 -$86.80 -$101.30 -$109.50 Net Income Before Abnormals $137.63 $152.81 $210.60 $233.90 $249.80 Abnormals $1.12 -$.63 -$38.20 -$.70 $.00 Net Income After Abnormals $136.51 $152.18 $172.40 $233.20 $249.80