$16\mathrm{.}1.$ Riverside Technologies Incorporated $($RTI$)$ is a

small firm in North Sioux City, SD$,$ that pro$-$

vides IT solutions for other companies. In

addition to providing IT services and com$-$

puter hardware $($i$.$e$.,$ laptops, desktops, and

tablets$),$ RTI has decided to add customized

computer bags for companies as well. Compa$-$

nies can have RTI create computer bags and

other accessories with a custom logo$.$

Suppose that a firm like RTI wants to

add embroidery service for their customers.

The firm would need to invest in five high$-$

end embroidery machines, which can embroi$-$

der high$-$quality graphics that can handle

repeated use on backpacks, laptop cases,

and tablet covers. These machines will cost

$$15,000$ each and have an expected life of

five years. The firm will also need to hire

someone to operate the machines at a salary

of $$40,000$ per year plus benefits equal to

$25$ percent of salary. The firm provides a cost$-$of$-$

living increase to salary $($including benefits$)$ of

$3$ percent annually.

Suppose that the firm has enough in cash

reserves to finance this expansion into a new

product line itself; however, the firm could

also take out a loan to finance the expansion. If

financing the expansion itself, the firm will be

giving up $2$ percent interest on a CD account.

If using a loan to finance the expansion, the

firm will pay an interest rate equal to $5\mathrm{.}75$ per$-$

cent; assume this interest rate is paid annually

on the full amount needed to finance the

machines. a$.$

Using the template, calculate operating profit for both the self$-$financing scenario and the debt$-$financing scenario. This analysis should include revenue and costs associated with producing the product, annual salary and benefits of the employee hired to operate the machines, and loan payments where relevant.

b$.$

Next, find costs that can be deducted from profit to lower the tax bill. Assuming a straight$-$line depreciation, find the annual depreciation allowance for both financing options. For the case where interest is paid, find the amount of interest that can be deducted.

c$.$ Calculate the taxable profit; taxes paid, assuming a $10$ percent tax rate; and profit after taxes. Remember that the depreciation allowance is only a cost for the purposes of taxes,

d$.$

Find the present value of profit after taxes for each year using either the CD interest rate or the loan rate as appropriate; add the yearly present values to find the presentPleas