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 $39,800 to purchase and construct. The co-op projects that it will yield $420 of tilapia and $990 of leafy greens every week. Operating expenses are expected to increase by $38,000 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 $8,600 after five years of use. Taxes are expected to stay at 30% 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 $8,600 at the end of five years. The co-op requires an 14% return to capital (pretax).
(i) Calculate the annual operating receipts

a. $35,320

b. $73,320

c. $38,000

d. $70,500

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(ii) Calculate the after tax- net returns

a. $28,625

b. $24,724

c. $28,256

d. $35,320

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(iii) Calculate the tax savings from depreciation

a. $796

b. $769

c. $531

d. $2,653

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(iv) Calculate the after-tax terminal value

a. $19,900

b. $12,187

c. $13,980

d. $8,600

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(v) Which discount rate should be used for calculating the NPV of this investment?

a. 12.8% b. 16%

c. 16.8% d. 9.8%

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(vi) What is the NPV?

a. $73,227

b. $66,197

c. $55,073

d. $65,148

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