Question
James Denning wants to buy a caravan rental business in the inner Melbourne suburb of Richmond. James spends $1,790,000 on the purchase of the business
James Denning wants to buy a caravan rental business in the inner Melbourne suburb of Richmond. James spends $1,790,000 on the purchase of the business including caravans and further advertising and signage costs amount to $234,000. He thinks he can net $658,000 each year after all costs are paid. He will work in the business and not take a salary. After 7 years of this venture, he aims to sell the business and the caravans. To be conservative, he allows only $393,000 as the amount recouped.What is the PP for the caravan venture?
PP =?
years
b.If James allows $51,000 as his own wage in his calculations and he could earn 8 per cent elsewhere on his funds, what is the NPV for the project? Please note that based on the discount rate of 8 percent, the present value of an annuity of $1 per year for 7 years is $5.20637, while the present value of $1 in 7 years is $0.58349.
Note: Please use the discount factors provided in the question to calculate NPV.
NPV = $?
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