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Menomonie McDenny's restaurant is considering investing in a kitchen
in a renovated van, to sell food at outdoor events.
The van will cost $90,000 to outfit, and it will be sold in year 4 for $10,000.
The van has a 5-year MACRS recovery period, for depreciation purposes.
The van will generate $48,000 in revenues and have $12,000 in expenses each year.
There is a 35% federal tax and a 10% state tax rate.
McDenny's uses an interest rate of 20% per year.
Use PRESENT WORTH analysis to determine whether or not to invest in the van.
A. Find the book value of the van after 4 years. Then find the capital loss or depreciation recapture
Year	dt	Depreciation	Book value
0
1
2
3
4
Capital loss or depreciation recapture?					Sold for	$10,000
		Amount?
B. Find the effective tax rate for this state:
Effective tax rate:
C. Fill in the following table to find the present worth of the after-tax cash flow for the van.
	Interest =
Year	Gross income	Expenses	Depreciation	Capital gains	Taxable income	Taxes		Capital	Salvage	Net cash flow
0
1
2
3
4
								Present value =
D. Should McDenny's invest in the van? Why or why not?

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