James Denning wants to buy a caravan rental business in the inner Melbourne suburb of Richmond. James spends $1,760,000 on the purchase of the business including caravans and further advertising and signage costs amount to $248,000. He thinks he can net $536,000 each year after all costs are paid. He will work in the business and not take a salary. After 4 years of this venture, he aims to sell the business and the caravans. To be conservative, he allows only $314,000 as the amount recouped. Important: For all amounts, please don't include the dollar sign ($) or any thousands separator - i.e., $12,000 should be written as 12000. For PP and NPV, please round up to 2 decimal places (e.g. 123456.789 should be written as 123456.79). For negative NPV, please include the - (minus) sign in front of the amounts. Please don't place the amounts in parentheses. Required: a. What is the PP for the caravan venture? PP = years b. If James allows $56,000 as his own wage in his calculations and he could earn 5 per cent elsewhere on his funds, what is the NPV for the project? Please note that based on the discount rate of 5 percent, the present value of an annuity of $1 per year for 4 years is $3.54595, while the present value of $1 in 4 years is $0.8227. Note: Please use the discount factors provided in the question to calculate NPV. NPV = $ James Denning wants to buy a caravan rental business in the inner Melbourne suburb of Richmond. James spends $1,760,000 on the purchase of the business including caravans and further advertising and signage costs amount to $248,000. He thinks he can net $536,000 each year after all costs are paid. He will work in the business and not take a salary. After 4 years of this venture, he aims to sell the business and the caravans. To be conservative, he allows only $314,000 as the amount recouped. Important: For all amounts, please don't include the dollar sign ($) or any thousands separator - i.e., $12,000 should be written as 12000. For PP and NPV, please round up to 2 decimal places (e.g. 123456.789 should be written as 123456.79). For negative NPV, please include the - (minus) sign in front of the amounts. Please don't place the amounts in parentheses. Required: a. What is the PP for the caravan venture? PP = years b. If James allows $56,000 as his own wage in his calculations and he could earn 5 per cent elsewhere on his funds, what is the NPV for the project? Please note that based on the discount rate of 5 percent, the present value of an annuity of $1 per year for 4 years is $3.54595, while the present value of $1 in 4 years is $0.8227. Note: Please use the discount factors provided in the question to calculate NPV. NPV = $
