Assignment 4 Capital Investments

Now that Tracy has completed her first year in her business, she would like to expand to another location. She has looked at a property near Ft. Lee. She feels this is a prime location since she could provide cupcakes for events and office celebrations at Ft. Lee.

She can purchase the property for $45,000 and believes she can build a building with all of the equipment for an additional $145,000. The estimated sales at the new location is $220,000 with a net operating income of $50,000. The minimum acceptable return for these types of investments is 24%. Tracy remembers studying return on investment and residual income from her college classes but needs you to do the calculations and explain what the numbers mean.

Your assignment is to write a professional memo explaining residual income and return on investment on this new venture. Calculate both, explain your calculations, and if this will be a good investment for her. Your paper is to be at least one page.