26 Jul DETERMINE ALICES FINANCIAL COST ASSOCIATED WITH THE INVESTMENT EXPENDITURE
Alice rents bikes on Orcus Island. In her current operation with 20 bikes Alice can generate $16000 Show more Alice rents bikes on Orcus Island. In her current operation with 20 bikes Alice can generate $16000 in after tax net revenue each year. Alice is considering expanding her operation to renting 40 bikes which will generate $35000 in annual revenue and will have operating (production) costs of $12000. Alice also has to pay a 10% tax to the government. She can finance the purchase of 20 additional bikes which cost $400 each by borrowing $8000 at a 5% annual real interest rate. Assume that the additional 20 bikes can always be resold for the original purchase price of $400. A. Determine Alices net revenue. B. Determine Alices tax liability. C. Determine Alices after tax net revenue. D. Determine Alices financial cost associated with the investment expenditure. E. Determine Alices financial benefit associated with the investment expenditure. F. Should Alice undertake the investment? Explain. Show less
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