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Youre the sole owner of a retail store called Wendys Wine and Exotic Cheeses. You want to purchase additional coolers so you can stock additional inventory. You believe the coolers will allow you to stock enough additional product to increase your businesss gross profit by $12,000 each year for the next 10 years. The coolers will cost $55,000. For tax purposes, the seven-year asset life coolers will be depreciated using the MACRS half-year convention depreciation method (see the MACRS half-year convention depreciation rate table included at figure 10.1). The coolers are deemed to have a salvage value of $5,000 at the end of year 10. Your company is an LLC thats taxed like a sole proprietorship, but because your personal income tax situation is heavily impacted by what happens with your business, you use your personal income tax rate of 22 percent when making capital budgeting decisions. As a result of the asset purchase, youll experience the following increases in annual expenses: personal property taxes, $55; insurance, $1,200; and utilities, $2,400. Because your business can borrow money at 8 percent, you feel 8 percent is a reasonable discount rate to use to evaluate this investment decision. Develop a tax depreciation schedule for this proposed asset purchase. Calculate the EAATBs for years 110 associated with this proposed asset purchase. Determine the payback period associated with this proposed asset purchase. Based on the results of your calculations, should you purchase the coolers? Calculate the NPV associated with this proposed asset purchase. Based on the results of your calculations, should you purchase the coolers? Use Microsoft Excel to calculate the IRR associated with this proposed asset purchase.

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