Question
Just Like Mom's restaurant has the opportunity to expand their dining area that would increase their annual revenue from $500,000 currently to $650,000. The expansion
Just Like Mom's restaurant has the opportunity to expand their dining area that would increase their annual revenue from $500,000 currently to $650,000. The expansion is projected to cost $50,000. Just Like Mom's experiences a 15 percent pre-tax profit margin. Using the following information, what is the NPV of the incremental pre-tax cash flow (summed up from year 1 to year 6 after accounting for the initial investment). Use a discount rate of 10% for the NPV computation.
Year Annual Revenues
1 $525,000
2 $550,000
3 $575,000
4 $600,000
5 $625,000
6 $650,000
A) less than or equal to $2,000
B) greater than $2,000 but less than or equal to $5,000
C) greater than $5,000 but less than or equal to $10,000
D) greater than $10,000
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