59. (Time line; payback; NPV) Black Hills Souvenir Show is considering expanding its building so it can stock additional merchandise for travelers and tourists.

Store manager Allison Crowe anticipates that building expansion costs would be $90,000. Although Ms. Crowe would need to invest in additional inventory, her suppliers are willing to provide inventory on a consignment basis.

Annual incremental fixed cash costs for the store expansion are expected to be as follows:

Year Amount 1 $ 5,550 2 7,200 3 7,200 4 7,200 5 7,950 6 9,450 7 9,750 8 11,250 Ms. Crowe estimates that annual cash inflows could be increased by $120,000 from the additional merchandise sales. The firm’s contribution margin is typically 20 percent of sales. Because of uncertainty about the future, Ms. Crowe does not want to consider any cash flows after eight years. The firm uses a 10 percent discount rate.

a. Construct a time line for the investment.

b. Determine the payback period (ignore tax).

c. Calculate the net present value of the project (ignore tax).