You are considering opening a new bar on Court Street. The initial necessary investment is $500,000. This investment has a projected salvage (or residual) value for tax purposes of $200,000. The government requires depreciating the remaining $300,000 using the straight-line method over 10 years. You expect that the bar will generate cash flows of $700,000 in revenue, $360,000 in variable costs, and $215,000 in fixed costs.

Required:

1. Create a Contribution Margin Income Statement for the first year of operations. Assume the income tax rate is 30%.
2. What is the annual after-tax cash flow generated by this investment each year?
3. Assume you can sell the bar for $400,000 at the end of 10 years. Your required return is 10%. What is the NPV of the investment in the bar? Based on NPV, should you invest in the bar?
4. Assume you can sell the bar for $150,000 at the end of 10 years. Your required return is 10%. What is the IRR of the investment in the bar? Based on IRR, should you invest in the bar?