What is the net cost of this acquisition

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Reference no: EM131069073

FSU Trust asks you to evaluate the proposed acquisition of Winery Apartments. The price is $6,750,000. The apartment falls into the MACRS 5-year class and would be sold for $7,500,000 after the depreciation. Use of the apartment would require an increase in net working capital by $300,000. The apartment is expected to increase revenue by $500,000 and increase operation costs by $250,000 per year. The tax rate is 20%

A) What is the net cost of this acquisition? (hint: what is the year 0 cash flow?)

B) What are the cash flows in year 1, 2, 3, 4, 5, and 6?

C) If interest rate is 6%, should the apartment be purchased? Why?

Reference no: EM131069073

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