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 fixture for the store will cost $200,000 and be depreciated over a 5-year period on a straight-line basis to $0. The new store will require Benford to increase its net working capital by $200,000 at time 0. First-year sales are expected to be $1 million and increase at an annual rate of 8 percent over the expected 10-year life of the store. Operating expenses (including lease payments and excluding depreciation) are projected to be $700,000 during the first year and increase at a 7 percent annual rate. The salvage value of the stores equipment and fixtures is anticipated to be $10,000 at the end of 10 Years. Benfords marginal tax-rate is 40 percent.

a. Compute the net investment required for Benford.

b. Compute the annual net cash flows for the 10-year projected life of the store.

c. If Benfords cost of capital is 12 percent, compute the stores

a) net present value,

b) the profitability index, and

c) the internal rate of return.

d. Given your results obtained above, is it logical a financial analyst might have reservations about whether to proceed with opening the store? Explain