Part A) Calculate the project after-tax cash flow in years 0 through 5 and using a minimum rate of return of 20%, determine the project after-tax NPV and DCFROR. Please be sure to include a cumulative column in your ATCF model to make sure the model is balanced.

Part B) Make a sensitivity analysis to Part A assuming 40% Bonus Depreciation was taken beginning in year 2 on the equipment cost only. Remember in addition to the 40% deduction, the investor could also take the MACRS depreciation allowed on the remaining 60% basis in the property starting in year 2. Recalculate the NPV @20% and the new project DCFROR.

Suppose you have an opportunity to build a business. It would involve acquiring a piece of ground for $750,000 today at time zero. A facility for your business would be constructed on the land. It would be a multi-unit commercial facility and you would occupy half of it and hope to rent out the other half. The construction cost of the building would be $2,900,000. Allocate half of the capital cost today and assume the remaining 50% would be incurred in year 1 . Start building depreciation on the total cost in year one assuming the building was ready for occupancy and placed into service in September of calendar year 1 (this is non-residential real property) Equipment related to the business will cost $1,500,000 at the end of year 1 and should be treated as 7-year MACRS property with depreciation beginning in year 2 Rental income from the rest of the building will be $500,000 per year in years 2-5 and should be treated as ordinary income. Property taxes and insurance for the entire facility are estimated at $55,000 per year in years 1 through 5. Your business is expected to generate $4,000,000 per year in revenues in years 2-5 with cost of goods sold estimated to be $2,300,000 per year inclusive of labor, overhead, and energy. Working capital will represent a $350,000 year 1 investment and will be returned in the final year 5 when the project is sold for an assumed $10,000,000. Assume a LIFO treatment of inventory with no changes in inventory levels predicted over the project life. Legal fees and commissions on the sale would be 5% of the sale value and deductible against the sale revenue. Write off all remaining book values including land and working capital at the end of year 5 and assume the project is held in a corporation and subject to an effective state and federal income tax rate of 38%. Assume other income exists (Expense scenario) which you could use if you have negative taxable income