QUESTION TWO

After graduating Mary and Ann have decided to put a bookstore focusing on business journals and magazines. They have approached a foundation which has accepted to provide all funds required in the business. MaryAnn Bookstore projections are as follows.

1. Bookstore premises. They intend to purchase immediately for cash a warehouse in an industrial area for Sh. 10 million and take one year to convert it into a bookstore at a cost of Sh.6 million.
2. Eight pick-up motor vehicles at a cost of Sh.2 million each, fully built will be acquired when the store is completed and ready for use. The vehicles have a four year with no salvage value.
3. The bookstore will be run for four years and projected costs and revenues are as follows
   1. Annual Fixed cash expenses will be Ksh 6,000,000 per year.
   2. The average cost of a journal and magazine is Ksh 120 and Ksh 400 in the first year of operation. This cost will increase at an inflation rate of 6% per year
   3. The average selling price per journal and magazine is Ksh 200 and Ksh 500 in the first year. This price will also increase at the inflation rate.
   4. Working capital of Ksh 1,500,000 will be injected immediately before operation commences.
   5. Projected sales of journals and magazines are 125,000 and 150,000 copies per year. No change in volume sold is expected.
4. At the end of four year, the bookstore will be sold at Ksh 17,000,000
5. This being a youth initiative, the bookstore is exempted from all taxes. Its cost of capital is 20%.

Required. Compute the Net present of this project