The cafeteria you operate has a regular clientele for all three meals, seven days a week. You want to expand your product line beyond what you are currently able to offer. To do so requires the purchase of some additional specialty equipment costing $45,000, but you project a resultant increase in sales (after deducting the cost of sales) of about $8,000 per year for each of the next eight years with this new equipment. Assuming a required rate of return (i.e., a hurdle rate) of 8%, should you pursue this opportunity? Why or why not? Do the analysis under two conditions:

a. You are part of an income-tax-exempt enterprise.

b. The enterprise you are part of is subject to a 40% corporate income tax rate, and the straight-line, depreciable life of the equipment you are contemplating purchasing is five years.

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Analysis of Cafeteria Expansion Project Project Details Initial Investment 45000 Annual Income after ... View the full answer