U 1 2 3 4 5 6 7 A B E F G H 1 J L M N 0 P R S T Mr. Liu is considering purchasing a mobile ice cream truck for $50,000. He plans to hire three students to operate the truck 8 hours a day. 5 days a week, for 48 weeks of the year at Ming Chuan University. He believes the truck will have a 5-year useful life and should be depreciated on a straight-line basis. He believes he can sell it for $2,000 at the end of 5 years. Assume his average tax rate is 20% The annual revenues and cash expenses for 5 years will be as follows Ice cream sales 150000 Cost of ice orean 20% Labor costs 40% Supplies 5% Maintenance 5,000 Other expenses 10% 9 # # # -- 12 Questions 13 1. Calculate his annual net income 14 2. Determine the profitability index for this proposed project. Assume the cost of capital is 8% c A D F A B D E 16 17 ANSWER 18 1 19 Annual Net Income 20 Ice cream sales (formula) 21 22 Expenses 23 Cost of Sales (formula) 24 Labor (formula) 25 Supplies (formula) 26 Maintenance (formula) 27 Others (formula) 28 Depreciation (formula) 29 Total Expense: (formula) 30 31 Pretax Income (formula) 32 Income Taxes (formula) 33 Net Income (formula) 34 35 36 2 Annual Cash Inflows 37 Year 1-4 Year 5 38 Annual net inoor (formula) (formula) 39 Plus: Depreciatio (formula) (formula) 40 Savage Value (number) (number) 41 Net Cash Inflows (formula) (formula) 42 43 cost of capital 44 45 Year Discount Factor 46 1 (formula) 47 2 (formula) 48 3 (formula) 49 4 (formula) 50 5 (formula) 51 52 Present value of cash flow in year 1-4 = (formula) 53 Present value of cash flow in year 5 = (formula) 54 Cost of investment: (number) 55 56 Profitability Index (formula)