Question

In: Accounting

Your company is undertaking a new project. A building was purchased 5 years ago for $1,000,000...

Your company is undertaking a new project. A building was purchased 5 years ago for $1,000,000 depreciated straight line to $100,000 (the land value) over 30 years. It is now worth $600,000 (including $100,000 land).

The project requires improvements to the building of $200,000. The improvements are depreciated straight line to zero over the life of the project.

The project will generate revenues of $325,000, $350,000, $375,000 and $400,000 for years 1-4, respectively. Annual cash operating expenses are $180,000, $200,000, $220,000 and $240,000, respectively.

The project will last 4 years, at which time the building will be sold for $800,000.

a)What is the total depreciation per year?

b)Show projected annual income statements.

c)What is the initial cost (CF0)?

d)What are annual operating Cash Flows?

e)What is the ending Cash Flow from the sales of the assets?

f)What is the total annual Cash Flows?

g)What is NPV? Show work

h)What is Profitability Index? Show work.

I)What is payback in whole years?

J)What is Average Accounting Return?

K)Show the format for IRR. Need to equation, not answer.

It is one question in several parts. Show work on excel Thanks!

show work in excel!

Solutions

Expert Solution

Answer:
a) Caculation of Total Depreciation for the Year
Depreciation on Building
Cost of Buliding $1000000
Salvage Value $100000
Life 30
Depreciable asset = Cost - Salvage Value
= $ 1000000 - $100000 = $ 900000
Depreciation per Year = Depreciable Asset / Life
= $900000/30
= $       30,000
Depreciation of Improvements
Cost of Buliding $ 200000
Salvage Value 0
Life 4
Depreciable asset = Cost - Salvage Value
= $ 200000 - $0 = $ 200000
Depreciation per Year = Depreciable Asset / Life
= $ 200000/30
= $         6,667
Total Depreciation per Year = Depreciation on Building + Depreciation on Improvement
= $ 30,000 + $ 6,667
= $36,667
b) Projected Annual Income Statement
Year 1 2 3 4
Revenue 325000 350000 375000 400000
Less: Expenses
           Cash Operating Expenses 180000 200000 220000 240000
           Depreciation 36667 36667 36667 36667
Net Income 108333 113333 118333 123333
c) Initial Cost
Initial Cost of Project is $ 200,000
d) Annual Operating Cash Flows
Year 1 2 3 4
Net Income 108333 113333 118333 123333
Add: Depreciation 36667 36667 36667 36667
Annual Cash Flows 145000 150000 155000 160000
e) Ending Cash Flow from Sale of Asset is $ 8,00,000

ekkarill92 answered 2 years ago
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