PROBLEM $8\mathrm{.}1$ for Self$-$Study

Cash flow analysis. Kary Kinnard has an opportunity to open a franchised pizza

outlet. He can lease the building, so he needs to invest only in equipment, which he

estimates will cost $$60,000.$ For tax purposes, assume he will depreciate the full

amount for the equipment over six years using the straight$-$line method. For purposes

of this analysis, assume the equipment will last six years, after which Kinnard will selt

it for $$6,000.$ He will pay taxes at $40$ percent on the taxable gain from the disposal at

the end of Year $6.$

Kinnard estimates the following revenues, variable costs, and fixed costs from

operations for the six$-$year period. He has included expected inflation in these

estimates. Assume end$-$of$-$year cash flows.

Use an after$-$tax cost of capital of $12$ percent per year and an income tax rate of $40$

percent for this analysis. The equipment will require a $$60,000$ cash outlay at the end

of Year $0.$

Prepare an appropriate analysis of all cash flows. Should Kinnard make the investment?

The solution to this self$-$study problem is at the end of the chapter on page $286.$

PROBLEM $8\mathrm{.}2$ for Self$-$Study

Internal rate of return. Using the data from Problem $8\mathrm{.}1$ for Self$-$Study, create a

spreadsheet analysis to estimate the internal rate of return.

The solution to this self$-$study problem is at the end of the chapter on page $286.$

SOLUTIONS TO SELF$-$STUDY PROBLEMS

SUGGESTED SOLUTIONS TO PROBLEMS $8\mathrm{.}1$ AND $8\mathrm{.}2$ FOR SELF$-$STUDY

afixed costs less depreciation.

Revenues less variable costs, fixed costs, and depreciation, plus disposal in Year $6.$

"Cash flow before taves less taves.

Kinnard should undertake the project because it has a positive net present value and an

internal rate of return exceeding the cutoff rate of $12$ percent.

Answers to $8\mathrm{.}1$ &$8\mathrm{.}2$ are provided. I would like to know how to work the problems out in detail. Thank you. and how this can be done on excel