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This is a Finance question - not calculus Capital Budgeting: Operating a Driving Range Two friends are considering opening a driving range. Because of the
This is a Finance question - not calculus
Capital Budgeting: Operating a Driving Range Two friends are considering opening a driving range. Because of the growing popularity of golf, they estimate such a range could generate rentals of 20,000 buckets at $3 a bucket the first year. They expect bucket rentals to grow at 750 buckets a year thereafter and to maintain the price at $3.00 (Table C). The initial equipment requirements are given in Table A. All depreciable equipment is 5-years ACRS property (Table D). The initial costs of the balls and baskets is $3,000 and then expenditures are expected to grow at 5% per year (Table C). The equipment is expected to have a salvage value of 10% of costs after 6 years. Operating costs are given in Table B. The relevant tax rate is 15% and the required return is 12%. Use the information below to calculate if the project is worthwhile if operated for the next 6 years. Equipment requirements The equipment will be considered a Capital Expenditure (Depreciable Asset) for tax purposes Table B Annual Operating (Fixed) Costs Table C Driving Range Revenues and Other Costs (CGS) Table D Depreciation Schedule 5-Year ACRS Depreciation on $18,000 of 5 -vear eaninment Capital Budgeting: Operating a Driving Range Two friends are considering opening a driving range. Because of the growing popularity of golf, they estimate such a range could generate rentals of 20,000 buckets at $3 a bucket the first year. They expect bucket rentals to grow at 750 buckets a year thereafter and to maintain the price at $3.00 (Table C). The initial equipment requirements are given in Table A. All depreciable equipment is 5-years ACRS property (Table D). The initial costs of the balls and baskets is $3,000 and then expenditures are expected to grow at 5% per year (Table C). The equipment is expected to have a salvage value of 10% of costs after 6 years. Operating costs are given in Table B. The relevant tax rate is 15% and the required return is 12%. Use the information below to calculate if the project is worthwhile if operated for the next 6 years. Equipment requirements The equipment will be considered a Capital Expenditure (Depreciable Asset) for tax purposes Table B Annual Operating (Fixed) Costs Table C Driving Range Revenues and Other Costs (CGS) Table D Depreciation Schedule 5-Year ACRS Depreciation on $18,000 of 5 -vear eaninment Step by Step Solution
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