Question
Benford Inc. is planning to open a new sporting goods store in a suburban mall. Benford will lease the needed space in the mall. Equipment
Benford Inc. is planning to open a new sporting goods store in a suburban mall. Benford will lease the needed space in the mall. Equipment and fixtures for the store will cost $250,000 and be depreciated to $0 over a 5-year period on a straight-line basis. The new store will require Benford to increase its net working capital by $100,000 at time 0. First-year sales are expected to be $0.7 million and to increase at an annual rate of 6 percent over the expected 10-year life of the store. Operating expenses (including lease payments but excluding depreciation) are projected to be $650,000 during the first year and to increase at a 5 percent annual rate. The salvage value of the stores equipment and fixtures is anticipated to be $11,000 at the end of 10 years. Benfords marginal tax rate is 40 percent. Calculate the stores net present value, using an 18 percent required return. Use Table II to answer the question. Round your answer to the nearest dollar. $ Should Benford accept the project? -Select- Calculate the stores internal rate of return. Round your answer to one decimal place. % Calculate the stores profitability index. Round your answer to two decimal places.
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