You would like to turn your love of baking into a career. To that end, you have spent a year researching the industry and decided to open a community bakery with specialty items. You collected the following information:

Equipment such as industrial ovens etc. will cost $270,000 and installation should cost 3,200. Equipment is expected to have a 5-year useful life. OR you could rent the equipment for 7-years at annual cost of $30,000. Display cases should cost 210,000 including installation and have a 7-year life.

Depreciation: USE MACRS depreciation method You expect revenues to be about $600,000 the first year and increase 4%,5% or 6% a year (justify your choice).

Expenses (rent, utilities etc.) are not expected to exceed 55% of revenues. You will require an initial investment in working capital of $20,000.

The tax rate is 30% and your WACC is 9%.

Evaluate the investment over 4-years. Scenario 1 requires the full capital investment. Scenario 2 leasing instead of buying the industrial equipment.

QUESTION:

Calculate the CashFlows of Scenario 2. Show calculations.