Question

SOLVE MANUALLY ALL THE PARTS IN THIS QUESTION

The Black Lotus Co. paid $250,000 for a second-hand cruise. This cruise is used for tourism purpose. It will generate $140,000 in revenue and incur $45,000 in general expenses from the first year. Revenue will increase at 3% each year and expenses will increase at 2% each year. The asset is classified as a 3-year MACRS property for depreciation purposes. The expected salvage value is $15,000 at the end of the project life. The firm pays taxes at a rate of 25% and has a MARR of 15%. The project has a 4- year life. A loan is to be taken out for 40% of the initial investment amount. The loan will be repaid annually over the project life in equal payments, at an interest rate of 5%. Calculate the following:

1. Determine the allowed depreciation amounts by using 3-year MACRS (4 points)

2. Calculate the repayment schedule of the loan (4 points)

3. Calculate the Gains (Losses) and tax associated with Asset Disposal (2 points)

4. Create the Income Statement (8 points)

5. Develop a Cash Flow Statement (8 points)

6. Is this project justifiable at a MARR of 15%?

6.1. Calculate the NPW (2 points)

6.2. Calculate IRR (2 points)

6.3. State your conclusions.

Answer 1

4.REVENUE STATEMENT

particulars	year 1	year 2	year 3	year 4
revenue	140000	144200	148526	152982
cost	(45000)	(45900)	(46818)	(47754)
ebit	95000	98300	101708	105228
(interest)	(5000)	(3750)	2500	1250
ebdt	90000	94550	99208	103978
dep	58750	58750	58750	58750
ebt	31250	35800	40458	45228

tax	7812	8950	10114	11307
EAT	23437	26850	30343	33921

LOAN STATEMENT

OUTSTANDING LOAN	INTEREST	INSTALEMENT	TOTAL	YEAR
100000	5000	25000	30000	1
75000	3750	25000	28750	2
50000	2500	25000	27500	3
25000	1250	25000	26250	4

DEPRECIATION

COST-RESIDUAL VALUE/NO.OF YEARS

250000-15000/4

58750

NET

particulars	year 1	year 2	year 3	year 4
revenue	140000	144200	148526	152982
cost	(45000)	(45900)	(46818)	(47754)
ebit	95000	98300	101708	105228
(interest)	(5000)	(3750)	2500	1250
ebdt	90000	94550	99208	103978
dep	58750	58750	58750	58750
ebt	31250	35800	40458	45228

tax	7812	8950	10114	11307
EAT	23437	26850	30343	33921
@15%	0.869	0.756	0.657	0.572
	71420	64713	58535	53008

NPV;247676+15000(0,572)-250000

=6256

SINCE NPV IS POSITIVE PROJECT CAN BE ACCEPTED

SINCE ALLTHE ANSWER ARE COVERED IN THE ABOVE TABLE YOU CAN CHOSE WHAT EVER MAY YOU WANT