Question
Bill Anders retires in 5 years. He would have to purchase equipment costing $500,000 to equip the outlet and invest an additional $150,000 for inventories
Bill Anders retires in 5 years. He would have to purchase equipment costing $500,000 to equip the outlet and invest an additional $150,000 for inventories and other working capital needs. Other outlets in the fast-food chain have an annual net cash inflow of about $150,000. Mr. Anders would close the outlet in 5 years. He estimates that the equipment could be sold at that time for about 10% of its original cost. Mr. Anders' required rate of return is 16%. Required: Part A: What is the investment's net present value when the discount rate is 16%? Part B: Refer to your calculations. Is this an acceptable investment? Why or why not
For PV 16% numbers are yr 0 - 1 yr1 - .862 yr2 - .743 yr3 .641 yr4. .552 yr5. .476
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