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Question: A businesswoman, retiring from her job as a marketing executive, has always wanted to be an entrepreneur and open her own antiques and collectibles

Question:

A businesswoman, retiring from her job as a marketing executive, has always wanted to be an entrepreneur and open her own antiques and collectibles shop. She is considering opening the store in Lakewood, Ohio. She is in need of financial expertise and has hired you as her consultant. The shop would require an initial investment of $100,000. As you may know, Lakewood has a significant number of antiques and collectibles shops. The entrepreneur plans on being in business for 6 years and then closing the business. Assume that the forecasts below are her best guess as to the financial data per year for each of the next 6 years.

Item Most Likely Pessimistic Optimistic
Estimated items sold per year 6,600 4,500 8,200
Estimated average price per item sold $20 $20 $20
Estimated annual cost goods sold $70,000 $64,000 $80,000
Tax Rate 25% 25% 25%
Required rate of return 12% 12% 12%
Probability state occurring 45% 35% 20%

Question:

1. What is the expected NPV (Net Present Value) of the antique and collectible shop? Show your complete calculations. In 3 professional sentences or less explain whether the shop should be opened or not.

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