Leroy Mandel is investigating the possibility of starting a hardware business. Leroy would sell home products, supplies, and maintenance materials. He has determined that the initial cost of the store would be \(\$ 400,000\) to acquire a suitable lease, obtain store fixtures, and fund working capital requirements. To obtain the needed funds, Leroy intends to sell \(\$ 300,000\) of stock and borrow \(\$ 100,000\) from a bank. The stock would pay annual dividends of \(8 \%\), and the bank loan will carry interest of \(16 \%\).

Leroy also has estimated that the store will generate an annual cash inflow of \(\$ 50,000\). For purposes of analysis, Leroy expects to operate the business for 20 years and then retire. Leroy does not want to invest unless he can fully recover his investment within nine years. There will be no residual value at the end of the 20 years, as the lease will expire, the inventory will be sold through normal operations, and store fixtures will be scrapped.

\section*{Required}

A. Compute Leroy's cost of capital.

B. Calculate the payback period.

C. Assuming that depreciation is \(\$ 10,000\) per year, compute the accounting rate of return. (Ignore income taxes.)

D. Compute the net present value of the investment.

E. Compute the internal rate of return of the investment.

F. If you were Leroy, would you invest in the store? Why or why not?