Question
Hi, Can you please help me with the questions below Suppose you own a concession stand that sells hot dogs, peanuts, popcorn and beer at
Hi,
Can you please help me with the questions below
Suppose you own a concession stand that sells hot dogs, peanuts, popcorn and beer at Fenway Park. You have three years left on the contract with the ball park and you do not expect it to be renewed.
Long lines limit sales and profits. You have developed four proposals to reduce the lines and increase profits.
Renovate by adding another window.
Update the equipment at the existing windows.
Build a new stand and remove the old one.
Rent an existing stand and involves investing initially $1000 in a sign and equipment installation.
Using 12% as the cost of capital,
Calculate the IRR and the NPV for each of the four options
Using IRR as the criteria, which proposal would you recommend?
Using NPV as the criteria, which proposal would you recommend?
How do you explain the differences between IRR and NPV as the criteria? Which is better?
Proposal | Investment | Year 1 | Year 2 | Year 3 |
Add anew window | $75,000 | 44,000 | 44,000 | 44,000 |
Update existing equipment | $50,000 | 23,000 | 23,000 | 23,000 |
Build a new stand | $125,000 | 70,000 | 70,000 | 70,000 |
Renta a larger stand | $1,000 | 12,000 | 13,000 | 14,000 |
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