Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A grocery store owner in Vancouver, British Columbia, Mr. Specter has been very successful for over 35 years. Mr. Specter is considering a neglected ice

image text in transcribed A grocery store owner in Vancouver, British Columbia, Mr. Specter has been very successful for over 35 years. Mr. Specter is considering a neglected ice cream store that has been up for sale in Metro Vancouver. Mr. Specter asked for you to review this as a consultant. Mr. Specter provided you with the following information. A replacement ice cream machine is worth $500,000 with expected life is 5 years. new ice cream machine will rejuvenate the store; however, the store will take time to improve its sales. Sales after first year acquisition is 100,000 ice creams/year with 10% increase year over year. The ice cream at Earnest is at $5/ ice cream. Ice cream price is expected to rise by 1.5% per year due to inflation. In terms of cost variable cost is expected to be 35% of the price, the cost is expected to increase by inflation as noted above. Mr. Specter will require a new employee to run the store. The salary is minimum wage per hour for 40 hours a week, these are also expected to increase by inflation. Given that the ice cream store will require marketing, digital marketing company has quoted $10,000/ year expected to increase by inflation. Mr. Specter does not have a return on a similar risk investment and is asking for your advice. Here is Mr. Specter's expectation from the consulting contract, 1. Find a discount rate for Mr. Specter based on current interest rates and risk of the project. Explain your findings and rationale for the discount rate. 2. Assess the project/acquisition to calculate NPV, IRR, and Payback Period. 3. Advice Mr. Specter on your analysis. Format (2,000 Words) 1. Discount Rate - explain your calculations of for discount rate and rationale. (500 words) 2. Calculation and analysis of NPV, IRR and Payback Period. ( 500 words) 3. Summarize the above and write your analysis to provide key insights and advice Mr. Specter if you recommend him to if he should buy the ice cream store or not. (1,000 words)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Principles Of Managerial Finance

Authors: Lawrence J. Gitman, Chad J. Zutter

13th Edition

9780132738729, 136119468, 132738724, 978-0136119463

More Books

Students also viewed these Finance questions

Question

What are the purposes of promotion ?

Answered: 1 week ago

Question

LO12.3 Explain how demand is seen by a pure monopoly.

Answered: 1 week ago