James is considering entering into the health club business under the James Weight Club banner. James has estimated that membership fees and other revenues will be $100,000 in each year. Utilities, rent, laundry costs would be $50,000 per year. The cost of the new equipment is $100,000 plus $2,500 for shipping and $2,500 for installation. The Australian Taxation Office (ATO) allows it to be depreciated to zero over a 10-year horizon. James plans to either replace the equipment or get out of gym business after five years. At that time, he can sell the equipment for $60,000. If he opens James Weight Club, the working capital will increase by $20,000 before the operations begin. The working capital is recovered at the termination of the operations. The firm's cost of capital is 10% and the tax rate is 28%. A. B. C. D. Calculate the initial investment of James Weight Club. (3 marks) Calculate the depreciation per year. (2 marks) Calculate the book value of the equipment after five years. (3 marks) What is the after-tax salvage value of the equipment at the end of year 5? (5 marks) What is the NPV of this investment? Would you accept or reject this new investment? (8 marks) E