I want to buy a race horse. The horse I am looking at is called “Super Fudge” is going to cost $180,000. The expenses associated to the horse are going to be $30,000 per year for 4 years. I am forecasting to win $90,000 per year racing this horse (4 years). I can write off the cost of the race horse since they are considered a 3-MACRS property. I am currently in the 25% tax bracket. I expect 10% on my money.

a. What would my Net Present Worth be for this investment before I considered taxes (draw a Cash flow diagram for full credit)? Should I buy the horse?

b. What would my depreciation be for the horse for years 1-4?

c. What would my taxes be for years 1-4?

d. What would my Net Present Worth on this project be after taxes are considered (draw a Cash flow diagram for full credit)? Should I buy the horse?