Question
1. Net Present Value- The Lees are considering adding a new piece of equipment that will speed up the process of building the bobble heads.
1. Net Present Value- The Lees are considering adding a new piece of equipment that will speed up the process of building the bobble heads. The cost of the piece of equipment is $52000. It is expected that the new piece of equipment will lead to cash flows of $17000, $23000, and $30000 over the next 3 years. If the appropriate discount rate is 8%, what is the NPV of this investment? Explain the findings.
2. Incremental Sales Analysis- If production does increase dramatically after their presentation on Shark Tank, the Lees will need more space for production. They have two options. Option 1 is to rent out a spacious warehouse nearby. If they pursue this option, there rent will be $2400 per month and utilities are estimated to cost an additional $350 per month. Their second option, Option 2, is to rent a smaller storefront space that is also nearby. The storefront rent is $1950 per month. However, utilities will likely only cost an additional $250 per month. They want to compare their options over one year's time (since each rental contract is a 1 year commitment). What is the incremental analysis if the Lees choose Option 1 over Option 2?
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