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Lillian Jordon is considering using some of the cash generated from her mailorder business to open a retail store. The fixed investment in the store

Lillian Jordon is considering using some of the cash generated from her mailorder business to open a retail store. The fixed investment in the store is expected to be $3.5 million. The investment can be depreciated over five years, after which point annual expenditures of $300,000 will be sufficient to maintain the facility. These maintenance outlays can be expensed in the years they are made. The required investment in net working capital is expected to be 25% of annual sales. Variable cost is estimated to be 35% of sales.Suppose Lillian projects firstyear sales of $1 million, secondyear sales of $4 million, and sales after the second year of $1.8 million. How much of an investment will be required to undertake the project? How much surplus cash is the venture expected to generate each year in the first six years of operation?

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