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ass12_due111808

ass12_due111808 - ISE460 Fall 2008 Due No.1(3 points...

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ISE460 Fall 2008 Session 23 11/08/08 Assignment 12 Due 11/18/08 No.1(3 points) Sonja Jensen is considering the purchase of a fast-food franchise. Sonja will be operating on a lot that is to be converted into a parking lot in six years, but that may be rented in the interim for $800 per month. The franchise and necessary equipment will have a total initial cost of $55,000 and a salvage value of $10,000 (in today’s dollars) after six years. Sonja is told that the future annual general inflation rate will be 5%. The projected operating revenues and expenses, in actual dollars, other than rent and depreciation for the business, are as follows: End of Year Revenue Expenses 1 $30,000 $15,000 2 35,000 21,000 3 55,000 25,000 4 70,000 30,000 5 70,000 30,000 6 60,000 30,000 Assume that the initial investment will be depreciated under the five-year MACRS and that Sonja’s tax rate will be 30%. Sonja can invest her money at a rate of least 10% in other investment activities during this inflation-ridden period.
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