Question: Question 17 22 points] lan is deciding whether to follow his dreams and open a taco truck. The truck will cost $100,000 in year 0
Question 17 22 points] lan is deciding whether to follow his dreams and open a taco truck. The truck will cost $100,000 in year 0 and be straight-line depreciated to a book value of $0 at the end of year 5. At the end of five years, Ian plans to sell the truck for $20,000 and exit the taco business to return to his life of being a finance professor. Capital Expenditure = $100,000 (in year 0) Annual Sales = $50,000 in years 1-5) Annual Cost of Goods Sold = $10,000 (in years 1-5) Annual Net Working Capital = 20% of next year's sales The corporate tax rate is 40%. Assume that the taco industry is fairly stable and the equity beta is 0.7 and the debt beta is 0. Furthermore, the market risk premium is 8% and the risk free rate is 3%. The capital structure of lan's taco truck is 75% equity and 25% debt. A. What are the cash flows from investment, operations, and changes in NWC for each year? What are the total cash flows for each year? (14 points) B. What is the NPV for this project? 8 points
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
