Question
Klingon Enterprises is considering opening a retail store selling classic weapons from history. Gowron, the CEO of the company has estimated it will cost $500K
Klingon Enterprises is considering opening a retail store selling classic weapons from history. Gowron, the CEO of the company has estimated it will cost $500K today to open the store today, and the best guess is after-tax cash flows will be $95K next year, and this is expected to grow each year after. The store has a lease of 7 years.
a) If the appropriate discount rate for this project is 12.0%, what level of annual growth will the business need to break-even on an NPV basis? Assume cash flows occur at the end of each year. (Construct a model on Excel and use Goal Seek.)
b) Suppose we make a more realistic assumption that the annual cash flows occur at the middle of each year, how does this fact change your answer to a)?
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