The GM of the Blue Moon hotel has approached you seeking advice on an investment project that she is considering. She is given you the following information: Project life Initial investment (cost of the asset) Depreciation method Salvage value of the asset at the end of the project Expected proceeds from sale of the asset at the end of the pr $ 100,000 straight-line Capital gain tax rate Income tax rate Incremental revenue years null 12,000 18% 21% Year 1 2 Revenue 25,000 27,500 3 30,500 4 5 6 7 8 33,550 36,910 40,601 44,661 Incremental expenses (not including depreciation) 32% of incremental revenue Required: 1. Estimate the annual depreciation expense. /2 2. Estimate the cash flows from operating the asset. /4 3. Estimate the terminal cash flow (proceed from the sale of the asset in year 8) 4. Estimate the project cash flows. /2 /2 422 5. Estimate the payback period, net present value and internal rate of return. Use a discount rate of 12% What do you recommend the GM to do? Why? /10 49,127