Question 10
20 pts
An urban cooperative in Austin that supplies leafy greens and herbs to local restaurants and grocery
stores is looking to expand their operation. The co-op would like to build an aquaponic system to
increase their production of greens and also start producing tilapia. The new system would cost
$28,000 to purchase and construct. The co-op projects that it will yield $240 of tilapia and $600 of
leafy greens every week. Operating expenses are expected to increase by $15,200 annually due to
fish nutrients, utilities, maintenance, and additional labor. Suppose that the workers wanted to
evaluate this investment over a five-year period of time before committing. They expect that the
components could be sold for $5,500 after five years of use. Taxes are expected to stay at 20% for
the next six years. The IRS will allow the co-op to depreciate the system using straight line over 15
years. Assume that the terminal value of this investment is $5,500 at the end of five years. The co-
op requires an 16% return to capital (pretax).
(i) Calculate the annual operating receipts
a. $28,480
b. $15.200
c. $43,680
d. $43,860
ENTER RESPONSE HERE:
(ii) Calculate the after tax- net returns
a. $22,928
b. $28,480
c. $28,660
d. $22,784
ENTER RESPONSE HERE:
(iii) Calculate the tax savings from depreciation
a. $1,866
b. $2,333
c. $373
d. $299
ENTER RESPONSE HERE:
(iv) Calculate the after-tax terminal value
a. $14,000
b. $8.133
c. $4,400
d. $5,500
ENTER RESPONSE HERE:
(v) Which discount rate should be used for calculating the NPV of this investment?
a. 12.8%
c. 3.2%
d.
16.8%
4%
ENTER RESPONSE HERE:
(vi) What is the NPV?
a. $51,696
b. $58,302
c. $80.529
ייייין
d. $51,669
ENTER RESPONSE HERE:
