QUESTION 1

Management at Jessrey Grind wants to install an espresso bar in its restaurant.

The espresso bar:

• Costs $140,000 and has a 10-year life.
• Will generate net annual cash inflows of $35,000.

Management requires a payback period of 5 years or less on all investments.

REQUIRED:

a. What is the payback period for the espresso bar? Show your workings. (12 Marks)

b. Will the management of Daily Grind invest in the espresso bar? Explain. (8 Marks)