Miley Cyrus is once again the inspiration for a small business owner (oops, she did it again - wait...wrong female pop star). With the recent legalization of marijuana in Colorado, an aspiring entrepreneur (whose favorite song is Wrecking Ball) is deciding whether he should open a storefront, Wrecking Bong, with the slogan Come get Wrecked. He has found a potential location that would cost an initial $250,000 investment to purchase and update the property. He expects an initial return of $0.50 for every dollar invested during the first year of business. After that first year, business will grow quickly. He forecasts a growth of 30% the next year, followed by another 20% and finally one last year of 15% growth before things calm down. After this period of rapid growth, he expects a modest decline of 20% for 10 years. Assume a cost of capital of 12%.

(a) Draw the timeline for the years 0-6.

(b) Find the PV for years 0-4.

(g)Should he open the business? Why or why not?

(c) Find the PV for years 5+.

(d) Find the PV of years 0-3.

(e) Find the PV of years 4+

(f) (Suppose the entrepreneur gets the following values. Case 1, High Growth: NP VH = 440, 000 and Case 2, Low Growth: NP VL = 56, 000. If the entrepreneur believes there is a 88% chance of the low growth state and a 12% chance of the high growth state, calculate the expected NPV.

(g) Should he open the business? Why or why not?