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1.1 The owner of a coffee shop wishes to expand her business by opening a second shop. The new shop will require an initial outlay
1.1 The owner of a coffee shop wishes to expand her business by opening a second shop. The new shop will require an initial outlay of 40,000, but it will generate a cash flow of 6,233 a year for each of the next 10 years. Using the NPV, find out if the expansion is worth pursuing if the required rate of return is 9%. 1.2 Answer the following two questions 1.2.1 Suppose you need 2500 next year to upgrade your business software. The interest rate is 5% per year. How much money must be set aside to pay for the purchase? (10 marks) 1.2.2 Suppose that you can postpone upgrading that software until the end of year 2 How much money must be set aside now? (10 marks) 1.2.3 Comment on your answers for 1.2.1 and 1.2.2, and explain the differences in the answers (if there were any). (8 marks) (Total 50 marks)
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