Question
Lord Farquaad is considering two business ideas and require you to advise him which of the businesses are feasible and he should pursue. He is
Lord Farquaad is considering two business ideas and require you to advise him which of the businesses are feasible and he should pursue. He is considering a fast-food outlet in the central business district and a food truck, which he feels would compliment his fast-food business, to sell food at sporting and other events. His research has revealed the following cash flow projections. An economist told him to use a 6% inflation rate and that he considers a 10% return over a six-year term as a good investment.
Fast-food outlet Food truck
Cash investment required 2 500 000 750 000
Equipment life span 15 years 8 years
First year net cash flow 233 867 213 450
Using discounted cash flows advise Lord Farquaad on which of the businesses are feasible and worth pursuing.
Lord Farquaad wants to know which of the two opportunities will he get his money back over the shortest time.
Step by Step Solution
3.41 Rating (157 Votes )
There are 3 Steps involved in it
Step: 1
To determine which of the two business opportunities is feasible and worth pursuing we will calculate the Net Present Value NPV for both the fastfood outlet and the food truck using a 10 discount rate ...Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started