1. El Table is contemplating an expansion of its menu to include soft serve ice cream once it reopens. Fortunately, previous generations of students involved in the business have carefully managed the cafs finances, and El Table has saved enough to finance this project. Some background information:

• An industry-grade soft serve machine costs $10,000 and will be paid in full at time of purchase.
• The time horizon for this project is 3 years. After 3 years of use, El Table will sell this machine in the used goods market (hello, eBay!) for $3,000.
• Estimated costs of ingredients for soft-serve are $1,000 per year.
• Estimated costs of maintenance (sterilization equipment) are $500 per year.
• Estimated costs of additional staff are $500 per year.
• Estimated revenue from selling soft serve is $5,000 per year (this is in addition to El Tables existing revenue from its current menu).

1. El Tables alternative to buying the soft-serve machine is to keep the $10,000 in a savings account earning 2% annual interest.

1. Calculate the PDV of revenues from the menu expansion (be sure to include both annual revenues and one-time revenues).

2. Calculate the PDV of costs from the menu expansion (be sure to include both annual costs and one-time costs).

3. Should El Table go ahead with this project? Why or why not?

2. During Family and Homecoming weekend, an (econ major) alum drops by El Table and learns about the proposed menu expansion. She reminds the staff that the food service industry can be risky -- even at a supportive community like Wellesley.

1. How would she suggest you change your PDV calculations to reflect this increased risk? Which variable in the formula would change?

2. Give an estimate of a value for this variable that better reflects the risk of the soft-serve menu expansion.

3. Would this change raise or lower the NPV of this project? No need to re-calculate anything, just think it through!