Question: You bought a survey device at $600,000 at beginning of year 1. You expect to use it to generate an annual revenue of $380,000 for year 1 and increase at 4% per year. The operating expenses will be $ 145,000 for year 1 and increase at 3% per year. At end of year 3, you can sell the device for $260,000 and close the business. Assuming you will have an income tax rate of 30% every year and a capital gain tax rate of 15% at year 3 and you will take depreciation charge every year based on the MACRS schedule as follows: Year 1 :20%, Year 2 :32% ,Year 3 19.2% Part 1 Assuming all cash investment and using a MARR of 20%, what is the Net Present Value of this 3-year business and what is the IRR? Show the results as formatted below:

revenue 1 2 3

operating expense

EBITDA

Depreciation

charge

Taxable income

Tax @ 30% tax rate

Net income

CFAT

Also clearly show the calculations of each year's Depreciation Charges, Cash Flow After Tax at Year 3 for selling of the device and calculations of the present value and IRR, separately. Part 2 Assuming you will obtain a bank loan of $400,000 at an interest rate of 6.5% per year. The loan requires interest payment only at end of each year and the loan principle is due at end of the 3rd year (like a bond arrangement). Everything else stays the same as Part 1. Re-calculate everything as you did in Part 1. Based on the result of Part 2 and an Incremental IRR analysis, make your recommendation as which way to go, Part 1 or Part 2, and explain how does financial leverage affect your decision in relation to the selection of this project?