Consider a retail business that is analyzing a new store opening:
Initial Costs:
•Store setup: $150,000
•Inventory: $50,000
Annual Cash Flows:
•Year 1: $40,000
•Year 2: $50,000
•Year 3: $60,000
•Year 4: $70,000
•Year 5: $80,000
Additional Data:
•Discount rate: 9%
•Tax rate: 25%
Requirements:
1.Calculate the Net Present Value (NPV).
2.Compute the Payback Period.
3.Determine the Average Accounting Return (AAR).
4.Assess the Internal Rate of Return (IRR).
5.Perform a sensitivity analysis with a 2% increase in the discount rate.