The owner of a bicycle repair shop forecast revenues of $200,000 a year. Variable costs will be $60,000, and rental costs for the shop are $40,000 a year. Depreciation on the repair tools will be $20,000.

a) Prepare an income statement for the shop based on these estimates. Tax rate is 20%

b) Calculate the operation cash flow for the repair shop using the three methods given below:

i. Dollars in minus dollars out.

ii. Adjust accounting profits.

iii. Add back depreciation tax shield.

if you insulate your office for $15,000, you will save $1,500, you will save $1,500 a year in heating expenses. These savings will last forever.

a) What is the NPV of the investment when the cost capitsl is 5%? 10%?

b) What is the IRR of the investment?

c) What is the payback period on this investment?