$ $ $ Year Production Selling Price Operating Costs Per Unit Additional Operating costs Sale Value of Bid & Land Equipment Land Building Tax Rate 1,000 54.00 $ (12.00) $ (10,000) $ 1,000 54.00 $ (12.00) $ (10,000 $ 1,000 54.00 $ (12.00) (10,000) 1,000 $4.00 $ (12.00) (10,000) $ 1,000 54.00 (12.00) (10,000) 82,500 $ 120,000) S-yr MACRS start in YR 1 $ (30,000) $ 145,000) 39 year start in 1 with a full year deduction 25% 0 54,000 54,000 54,000 54,000 (12,000) (10,000) (4,000) (1,154) (12,000) (10,000) (6,400) (1,154) (12,000) (10,000) (3,840) (1,154) (12,000) (10,000) (2,304) (1,154) Year Gross Revenue Sale Value -Op. Cost/Unit Additional Op. Cost Equipment Depr. -Building Depre. Land Write Off Taxable income Tax Net Income +Equipent Depr. -Building Depr. +Land Write oft Capital Equipment Capital Building Capital Land After Tax Cash Flow 54,000 82,500 (12,000) (10,000) (3,456) (40,385) (30,000) 40,659 (10,165) 30,495 3,456 40,385 30,000 26,846 16,712) 20,135 4,000 1,154 24,446 (6,112) 18,335 6,400 1,154 27,006 (6.752) 20,255 3,840 1,154 28,542 17,136) 21,407 2,304 1,154 Cum 270,000 82,500 (60,000) (50,000) (20,000) (45,000) (30.000) 147,500 (36,875) 110,625 20,000 45,000 30,000 (20,000) (45,000) (30.000) 110,625 (20,000) (45,000) (30,000) 195,000) 25,288 25,888 25,248 24,864 104,335 NPV @10% = 50,121 > 0, Accept Question #1 How much more can Belong Designs spend on a building in year and still achieve a 10% Rate of Return? For simplicity, ignore the increase in salvage value and follow the same deduction schedule as the original building cost