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Tony DiLorenzo is evaluating an investment opportunity. He feels that this investment must earn a minimum compound annual after-tax return of 9% in order to be acceptable. Tonyโ€™s initial investment would be $7,500, and he expects to receive annual after-tax cash flows of $500 per year in each of the first 4 years, followed by $700 per year at the end of years 5 through 8. He plans to sell the investment at the end of year 8 and net $9,000, after taxes.

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You are contemplating a business venture, which involves an initial investment of $150,000 followed by an additional investment of $30,000 at the end of first year and $20,000 at the end of 2nd year. You want to analyze the venture over a project life of 10 years (measured from today). Cost of Capital (MARR) = 12%. The venture will result in benefit of $170,000 in the 3rd year and increasing at 4% per year. The operating expenses are estimated to be $50,000 in the 3rd year and decreasing at 2% per year. At the end of the project life, you will sell the business for $20,000. Do the analysis using before tax cash flows. In before tax analysis, taxes are ignored and depreciation is not relevant.

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