Reference no: EM132734728

Question - The Black Lotus Co. paid $250,000 for a second-hand cruise. This cruise is used for tourism purpose. It will generate $140,000 in revenue and incur $45,000 in general expenses from the first year. Revenue will increase at 3% each year and expenses will increase at 2% each year. The asset is classified as a 3-year MACRS property for depreciation purposes. The expected salvage value is $15,000 at the end of the project life. The firm pays taxes at a rate of 25% and has a MARR of 15%. The project has a 4- year life. A loan is to be taken out for 40% of the initial investment amount. The loan will be repaid annually over the project life in equal payments, at an interest rate of 5%. Calculate the following:

Required -

a. Determine the allowed depreciation amounts by using 3-year MACRS.

b. Calculate the repayment schedule of the loan.

c. Calculate the Gains (Losses) and tax associated with Asset Disposal.

d. Create the Income Statement.

e. Develop a Cash Flow Statement.

f. Is this project justifiable at a MARR of 15%? Calculate the NPW. Calculate IRR. State your conclusions.