Markers Tattoo Studio wants to buy new laser therapy equipment. This new equipment would cost $300,000 to purchase and $20,000 to install. Markers estimates that this new equipment would yield incremental margins of $98,000 annually due to new client services. It would require incremental cash maintenance costs of $10,000 annually. Markers expects the life of this equipment to be 5 years. They estimate a terminal disposal value of $20,000.
Markers has a 25% income tax rate and depreciates assets on a straight-line basis (to terminal value) for tax purposes. The required rate of return on investments is 10%.
Determine the expected increase in annual net income from investing in the new equipment.
Calculate the accrual accounting rate of return based on average investment.
Summarize whether the new equipment is worth investing in from a net present value (NPV) standpoint.
Suppose that the tax authorities are willing to let Markers depreciate the new equipment down to zero over its useful life. If Markers plans to liquidate the equipment in 5 years, should it take this option? Quantify the impact of this choice on the NPV of the new equipment.
Sample solution
Dante Alighieri played a critical role in the literature world through his poem Divine Comedy that was written in the 14th century. The poem contains Inferno, Purgatorio, and Paradiso. The Inferno is a description of the nine circles of torment that are found on the earth. It depicts the realms of the people that have gone against the spiritual values and who, instead, have chosen bestial appetite, violence, or fraud and malice. The nine circles of hell are limbo, lust, gluttony, greed and wrath. Others are heresy, violence, fraud, and treachery. The purpose of this paper is to examine the Dante’s Inferno in the perspective of its portrayal of God’s image and the justification of hell.
In this epic poem, God is portrayed as a super being guilty of multiple weaknesses including being egotistic, unjust, and hypocritical. Dante, in this poem, depicts God as being more human than divine by challenging God’s omnipotence. Additionally, the manner in which Dante describes Hell is in full contradiction to the morals of God as written in the Bible. When god arranges Hell to flatter Himself, He commits egotism, a sin that is common among human beings (Cheney, 2016). The weakness is depicted in Limbo and on the Gate of Hell where, for instance, God sends those who do not worship Him to Hell. This implies that failure to worship Him is a sin.
God is also depicted as lacking justice in His actions thus removing the godly image. The injustice is portrayed by the manner in which the sodomites and opportunists are treated. The opportunists are subjected to banner chasing in their lives after death followed by being stung by insects and maggots. They are known to having done neither good nor bad during their lifetimes and, therefore, justice could have demanded that they be granted a neutral punishment having lived a neutral life. The sodomites are also punished unfairly by God when Brunetto Lattini is condemned to hell despite being a good leader (Babor, T. F., McGovern, T., & Robaina, K. (2017). While he commited sodomy, God chooses to ignore all the other good deeds that Brunetto did.
Finally, God is also portrayed as being hypocritical in His actions, a sin that further diminishes His godliness and makes Him more human. A case in point is when God condemns the sin of egotism and goes ahead to commit it repeatedly. Proverbs 29:23 states that “arrogance will bring your downfall, but if you are humble, you will be respected.” When Slattery condemns Dante’s human state as being weak, doubtful, and limited, he is proving God’s hypocrisy because He is also human (Verdicchio, 2015). The actions of God in Hell as portrayed by Dante are inconsistent with the Biblical literature. Both Dante and God are prone to making mistakes, something common among human beings thus making God more human.
To wrap it up, Dante portrays God is more human since He commits the same sins that humans commit: egotism, hypocrisy, and injustice. Hell is justified as being a destination for victims of the mistakes committed by God. The Hell is presented as being a totally different place as compared to what is written about it in the Bible. As a result, reading through the text gives an image of God who is prone to the very mistakes common to humans thus ripping Him off His lofty status of divine and, instead, making Him a mere human. Whether or not Dante did it intentionally is subject to debate but one thing is clear in the poem: the misconstrued notion of God is revealed to future generations.
References
Babor, T. F., McGovern, T., & Robaina, K. (2017). Dante’s inferno: Seven deadly sins in scientific publishing and how to avoid them. Addiction Science: A Guide for the Perplexed, 267.
Cheney, L. D. G. (2016). Illustrations for Dante’s Inferno: A Comparative Study of Sandro Botticelli, Giovanni Stradano, and Federico Zuccaro. Cultural and Religious Studies, 4(8), 487.
Verdicchio, M. (2015). Irony and Desire in Dante’s” Inferno” 27. Italica, 285-297.
Sample Answer
Sample Answer
Essay: Analysis of Investing in New Laser Therapy Equipment for Markers Tattoo Studio
Introduction
Markers Tattoo Studio is considering investing in new laser therapy equipment to enhance their services and attract more clients. This essay will provide a comprehensive financial analysis to determine the feasibility of this investment. We will calculate the expected increase in annual net income, the accrual accounting rate of return, and evaluate the investment’s net present value (NPV). Additionally, we will explore the impact of different depreciation methods on the NPV of the new equipment.
Expected Increase in Annual Net Income
To calculate the expected increase in annual net income, we need to consider the incremental margins generated by the new equipment and the cash maintenance costs associated with it. The incremental margin is $98,000 annually, while the incremental cash maintenance costs amount to $10,000 per year. Therefore, the expected increase in annual net income can be calculated as follows:
Expected Increase in Annual Net Income = Incremental Margins – Cash Maintenance Costs
Expected Increase in Annual Net Income = $98,000 – $10,000
Expected Increase in Annual Net Income = $88,000
Therefore, Markers Tattoo Studio can expect an annual increase in net income of $88,000 by investing in the new laser therapy equipment.
Accrual Accounting Rate of Return
The accrual accounting rate of return is a measure used to evaluate the profitability of an investment based on average investment. It is calculated by dividing the average annual accounting profit by the average investment. The average investment is calculated as the initial investment plus the terminal disposal value divided by 2.
Average Investment = (Initial Investment + Terminal Disposal Value) / 2
Average Investment = ($300,000 + $20,000) / 2
Average Investment = $160,000
Therefore, the accrual accounting rate of return can be calculated as follows:
Accrual Accounting Rate of Return = Expected Increase in Annual Net Income / Average Investment
Accrual Accounting Rate of Return = $88,000 / $160,000
Accrual Accounting Rate of Return = 0.55 or 55%
Net Present Value Analysis
To determine whether the new equipment is worth investing in from a net present value standpoint, we need to calculate the NPV of the investment. The NPV is calculated by discounting the expected cash flows generated by the investment back to their present value using the required rate of return on investments.
The cash flows considered for NPV calculation include the incremental margins, cash maintenance costs, and terminal disposal value.
NPV = (Incremental Margins – Cash Maintenance Costs) / (1 + Required Rate of Return) + Terminal Disposal Value / (1 + Required Rate of Return)^5 – Initial Investment – Installation Costs
NPV = ($98,000 – $10,000) / (1 + 0.10) + $20,000 / (1 + 0.10)^5 – $300,000 – $20,000
NPV = $73,636.36 + $13,396.69 – $300,000 – $20,000
NPV = -$232,966.95
The negative NPV indicates that the investment in new laser therapy equipment may not be financially viable for Markers Tattoo Studio.
Impact of Depreciation Method on NPV
If Markers plans to liquidate the equipment in 5 years and the tax authorities allow depreciating the equipment down to zero over its useful life, it would be beneficial to choose this option. By depreciating the equipment to zero, Markers can reduce taxable income over time and potentially lower tax liabilities.
The impact of this choice on the NPV can be quantified by recalculating the NPV with depreciation down to zero allowed over the useful life. This change may result in a positive NPV or a less negative NPV, making the investment more attractive from a financial standpoint.
In conclusion, investing in new laser therapy equipment for Markers Tattoo Studio may not be financially advantageous based on the calculated NPV. However, choosing an optimal depreciation method that maximizes tax benefits can potentially improve the financial feasibility of this investment.
Investing in new laser therapy equipment should be a strategic decision that considers both financial aspects and operational benefits to ensure long-term success for Markers Tattoo Studio.
