A) You sell your business, move to a new city, and start work in a new salon. This salon has a different mix of services and a different cost structure. You provide three services - haircuts (charge $22), hair coloring (charge $54), and highlights (charge $120). You pay the salon $18,700 per year for rent and then variable costs per service - haircuts $9, hair coloring $20, and highlights $22. Generally, you do six haircuts, three hair colorings, and two highlights in a day.

1. Based on the above sales mix, how many of each service do you have to provide to break-even?

1. After how many working days will you break even?

1. After 250 working days (5 days/wk & 50 wk/yr), what will be your profit?

B) You have the itch to own your own salon again. You have two options and you can only choose one. The first option is to purchase the salon where you are currently working for $750,000; you expect to be able to make an operating income of $110,000 per year for 15 years. You expect to have zero salvage value at the end of the 15 years. Another option is to open an entirely new salon for $500,000 in the same neighborhood and you expect to be able to make $75,000 for 15 years, and you are confident you can then sell the business for $150,000. You have a required rate of return of 10%.

1. What would be the proper method to use to assess these options and why?

1. Calculate the NPV and IRR for both options and indicate which choice is best.