Question 4:

First Pioneer Investment Ltd. decided to establish a new language center in Irbid to serve both businesses and individuals. The new language center needs a building to start operations. The selected building can be rented for JOD 40,000 per year. This building is close to the business and educational districts in order to attract the right sort of clients.

To start operating, the new language center needs JOD 120,000 on decorating and preparing the center. The new center also needs to purchase some equipment at a cost of JOD 70,000. The equipment can be sold at the end of four years for JOD 7,000.

A market research conducted by First Pioneer Investment Ltd. Showed that the new center could attract and maintain 600 students. Each student would pay an annual tuition fee of JOD 900. The new center needs to hire five Instructors with a total salary of JOD 43,000 per year. The new center will operate for 4 years before retiring.

Required:

The Chief Executive Officer of First Pioneer Investment Ltd. has asked you as a Financial Manager to recommend investing in the center, knowing that the required rate of return is 14%, and the new center is tax exempted.