Net Present Value, Internal Rate of Return, and Payback Period Analyses; Ethical Issues a. The net present value is calculated as follows: Purchase price Working capital Net cash receipts Store remodel Today 0 (420,000.00) (50,000.00) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 $80,000 $115,000 $118,000 (100,000.00) $140,000 $155,000 $167,000 $175,000 Total cash in (out) (470,000.00) 80,000.00 115,000.00 18,000.00 PV factor (r=13%) 1.0000 0.8850 0.7831 0.6931 Present value (470,000.00) 70,800.00 90,056.50 12,475.80 140,000.00 0.6133 85,862.00 155,000.00 0.5428 84,134.00 167,000.00 175,000.00 Net Present 0.4803 0.4251 Value 80,210.10 74,392.50 27,930.90 b. The net present value is positive so it is recommended to open the store. NPV Calculation using 14 percent (see requirement a for NPV using 13 percent) Purchase price Working capital Net cash receipts Store remodel Total cash in (out) PV factor (r =14%) Present value Today 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Net Present Value Net Present Value, Internal Rate of Return, and Payback Period Analyses; Ethical Issues (continued) b. (continued) NPV Calculation using 15 percent (see requirement a for NPV using 13 percent) Purchase price Working capital Net cash receipts Store remodel Total cash in (out) xPV factor (r =15%) Present value Today 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Net Present Value 46. Internal Rate of Return Analysis (continued) d. The payback period is years and months. e. f. Investment Cash Present (Cash outflow) Inflow Value Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 47. Net Present Value Analysis with Taxes a. The net present value is calculated below. Purchase price Working capital After-tax net cash receipts Store remodel Store depreciation tax savings Remodel depreciation tax savings Total cash in (out) PV factor (r=13%) Present value Today 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Net Present Value 47. Net Present Value Analysis with Taxes (continued) b.