1) MathSoc has hired you to evaluate the NPV of its proposed new pizza restaurant. It is expected that the business will last in perpetuity. MathSoc expects to invest $1,250,000 in order to open the site. Beginning the end of year 1, the associated annual cash flows (expressed in nominal terms) are expected to be:

Revenue $185,000 Labour Costs 88,000 Other Costs 33,000

The company will rent space in M3 for $35,000. The rental payments start at the end of year 1 and are expressed in nominal terms. The Dean has kindly agreed to lease the space in perpetuity at this rate. Revenues will increase by 3% per year in real terms. Labour will increase by 1.5% per year in real terms. Other costs will decrease by 1% in real terms. The rate of inflation in expected to be 4% per year. MathSocs required rate of return is 9% in real terms. Since MathSoc is a non-profit enterprise, it does not pay taxes. All operating cash flows occur at year end. What is the NPV of the proposed pizza place?