The manager of the College Town Restaurant is considering placing a hot dog cart in front of his restaurant over the lunch hour. After some careful analysis, he estimates that the cart will generate the following cash flows after expenses over its 7-year life:

The manager estimates that the project has a risk of 6 = 1.0, that the k,, = 16%, and that the Ry = 8%.
Required:
1. Calculate the appropriate required rate of return on the project.
2. Calculate the present value of the project’s cash flows.
3. If the cost of the cart is $4,000 (to be paid today), should College Town’s manager proceed with the project? Why or why not?