Reference no: EM132050252

You are the analyst for Joe's Burger Shop, a restaurant that is thinking of expanding their business to include catering for at least the next three years. To take on this project, the restaurant would need to purchase a van to transport food to customer locations. The price of the van is $40,000 and there would be a customization expense of $10,000 to modify the van for this special use. The vehicle would be depreciated using the 3-year MACRS schedule (33%, 45%, 15%, 7%) and be sold at the end of 3 years for $5,000.This Project would increase sales by $25,000 annually and increase food costs by $5,000. There would also be an increase in net operating working capital of $3,000. The restaurant's current tax rate is 40%, and their WACC is 10%. Based on the capital Budgeting techniques we're learning about in class, should the restaurant expand their business to include catering services? Why or why not? Once you have calculated cash flows for this project, you will also need to calculate the project's payback period, discounted payback period, NPV, IRR, and MIRR. Now assume that the restaurant's WACC falls to 7.5% and calculate the NPV, IRR, MIRR, payback period and discounted payback period for the second half of this problem.