Melvin owns and operates a craft brewery. Currently, he does not bottle his beverages, but he has received great feedback from customers in his taproom and believes that bottling his beer is a great way to expand his business. He has contacted several local stores who have agreed to carry his product but he needs to find a way to can and deliver his product to the stores. He has found a new automatic bottling machine costing $$30,000$ and a delivery truck costing $$40,000.$ To finance the purchase, a $15\%$ down payment will be made and the remaining balance will be borrowed with a fully amortized loan for $10$ years at a $6\%$ rate. Melvin estimates that by selling in these retail centers outside of his taproom, his operating receipts will increase by $$25,000,$ but his operating expenses for the raw material, labor, fuel, electricity, and insurance will increase by $$13,000$ per year. Melvin requires a $10\%$ pretax return to capital, faces a $28\%$ marginal tax rate, has a $5$ year investment life, will depreciate the equipment over $9$ years, and has a terminal value of $$25,000.$ The inflation rate is expected to be $1\%$ and the risk premium on this investment is $2\%.$

What is the nominal pre$-$tax net return in year $3?$

a$.$$$12,363\mathrm{.}61$ b$.$$$12,734\mathrm{.}50$

c$.$$$13,513\mathrm{.}95$ d$.$$$13,112\mathrm{.}72$

What is the yearly allowable depreciation?

a$.$$$8,750$ b$.$$$10,000$

c$.$$$8,333\mathrm{.}33$ d$.$$$7,777\mathrm{.}78$

What is the yearly loan payment?

a$.$$$7,789\mathrm{.}86$ b$.$$$5,333\mathrm{.}33$

c$.$$$8,084\mathrm{.}14$ d$.$$$8,792\mathrm{.}06$

What are the tax savings from interest in year $1?$

a$.$$$918\mathrm{.}75$ b$.$$$999\mathrm{.}60$

c$.$$$1,092$ d$.$$$1,458$

What is the principal payment in year $1?$

a$.$$$4,514\mathrm{.}14$ b$.$$$5,117\mathrm{.}06$

c$.$$$3,583\mathrm{.}26$ d$.$$$4,149\mathrm{.}86$

What is the Net Cash Flow after$-$debt in year $1?$

a$.$$$3,131\mathrm{.}41$ b$.$$$2,927\mathrm{.}72$

c$.$$$4,495\mathrm{.}14$ d$.$ $$3,819\mathrm{.}63$