Problem 2: You are evaluating a 3-year investment opportunity in a bicycle carriage service that will shuttle people between Upper Greenville and Lower Greenville on weekend nights. The purchase price is $230K and includes all relevant costs associated with the implementation of the machine (such as shipping and assembly). The assets value will be straight-line depreciated down to an end-of-life value of $50K (Note that it is not depreciated to zero). Its market value is $56K. The carriage service is expected to provide cash sales of $240K per year and will require COGS of 54.17%. Net working capital (NWC) is expected to increase by $32K at t=0 and decline by $32K at t=3. The relevant marginal tax rate for this analysis is 30% and cost of capital is 25%.

Prepare capital budgeting table to calculate Projects cash flow year 0-3 and answer the following questions:

(a) What is Annual depreciation for the asset?

(b) What is Projects cash outflow in year 0 (Initial outlay)?

(c) What is revenue in year 3?

(d) What is Annual operating cash flows for year 1?

(e) What is Assets after-tax value in year 3?