It's December 2020 and you are evaluating an investment opportunity to open a Bubble tea shop at your university.

You already have the neccessary furniture which your brother gifter to you prior to closing his business and moving to bali. You estimate that you could sell it today for 700,000.

You made a rent prepayment for the next 2 months of 400,000 as you were afraid the spot could be quickly taken by another person.

You plan to buy equipment from Taiwan. The cost of equipment is 2,000,000. You estimate its useful life to be 3 years only.

You plan to run the business for 3 years until you graduate, and after you plan to sell the equipment and furiture for 200,000.

Other info to consider:

Your bubble tea will compete with the coffee shop near and will decrease their profits by 100,000 every year.

Below are the forecasted cash flows:

	2020	2021	2022	2023
Sales		12 000 000	13 000 000	14 000 000
COGS		-6 000 000	-6 500 000	-7 000 000
Salary		-400 000	-440 000	-480 000
Rent		-1 400 000	-1 800 000	-1 800 000

Below are the balances of Inventory. Assume that Inventory is the only net working capital you will be investing in.

	2020	2021	2022	2023
Inventory	500 000	1 000 000	1 500 000	0

Financing:

You only have 25% of required amount to start the business, so you team up with your friend who has also put 25% and the rest you take from the bank under the 15% effective annual rate. The tax rate is 20%.

Beta is 1.2, Risk free rate is 3%, Market return is 9%.

Required:

1. Calculate incremental free cash flows;

2. Calculate cost of capital;

3. Calculate NPV of the project;

4. Should you accept the project based on NPV? Why?

5. Calculate IRR

6. Should you accept the project based on IRR? WHy?

7. Calculate the Payback period.