Net Present Value Analysis

You have an opportunity to invest in a concession at a world exposition. To use the building and exhibits more fully, the venture is expected to cover a six-year period consisting of a preliminary year, the two years of formal exposition, and a three-year period of reduced operation as a regional exposition. The terms of the concession agreement specify the following: 1. At inception, a $120,000 deposit is paid to Global Expo, Inc., the promoting organization. This amount is returned in full at the end of the six years if the operator maintains the concession in order and keeps it open during scheduled hours. The deposit is not tax deductible, nor is its return subject to income taxes. 2. The operator must install certain fixtures that will cost $300,000. The fixtures become the property of Global Expo, Inc., at the end of the six years. After careful investigation and consultation with local experts, you conclude that the following schedule reflects the estimated pre-tax income of the concession (amounts in thousands of dollars): Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Sales (all cash) $165 $450 $503 $315 $255 $195 Operating expenses Cash 75 228 279 170 140 106 Tax depreciation 48 77 46 28 28 13 Total expenses 123 305 325 198 168 119 Pre-tax income 42 145 178 117 87 76 Assuming an income tax rate of 40% and a desired annual return of 9%, what is the net present value of this investment opportunity? Round answers to the nearest whole number. Use rounded answers for subsequent calculations. Use a negative sign with net present value to indicate a negative amount. Otherwise do not use negative signs with your answers. Enter answers below using complete numbers. Do not enter answers in thousands as shown above in the exhibit. For example, Year 1 Sales figure above shows as $165. The number would be entered below as $165,000. Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Cash sales Answer 155,000 Answer 440,000 Answer 493,000 Answer 0 Answer 0 Answer 0 Operating expenses Answer 0 Answer 0 Answer 0 Answer 0 Answer 0 Answer 0 Income taxes Answer 0 Answer 0 Answer 0 Answer 0 Answer 0 Answer 0 Total cash outflows Answer 0 Answer 0 Answer 0 Answer 0 Answer 0 Answer 0 After-tax cash inflows Answer 0 Answer 0 Answer 0 Answer 0 Answer 0 Answer 0 Present value Answer 0 Answer 0 Answer 0 Answer 0 Answer 0 Answer 0 Present value of net after-tax operating cash inflows Answer 0 Return of deposit in 6 years Answer 0 Total present value of future cash flows Answer 0 Investment required Answer 0 Net positive (negative) present value Answer 0 What is the maximum amount that could be invested and still earning a 9% annual return? $Answer 0