Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Rather than getting a part - time job to support yourself, you are thinking about opening an espresso stand near campus for the 4 years

Rather than getting a part-time job to support yourself, you are thinking about opening an espresso stand near campus for the 4 years you are at UO. You've done fairly limited market research (costing $200 for copying and distributing surveys), and have come to the conclusion that you can sell 2000 drinks per week during the 30-week academic year at an average price of $2.25 per drink. Your variable costs will be only about $1.25 per drink. You will keep the stand open 60-hours a week, and work 20 of those yourself. You will employ someone else at $8 per hour for the other 40 hours. The stand and espresso machine will cost about $6000. You hope to sell your business (including the name you will have built, cart and machine) for about $3000 when you leave school. You do a straight depreciation over 4 years to salvage value. You will have to pay an annual lease of $10,000 for the right to secure your cart location near campus. You will invest $500 in inventory today. It will stay at $500 through year 3 and drop to zero by the end of year 4. There are no account receivables and account payables. The tax rate is 25%. If your discount rate is 12%, what is the NPV of doing the espresso stand? should you do the espresso stand? (convert all weekly cash flows to annual ones and do the analysis at the annual level). You will only operate the stand during the academic year.
\table[[Revenue],[],[Variable Cost],[Salary],[Lease],[Depreciation],[EBIT],[Tax],[EBIAT],[Capex],[NWC],[Chg NWC],[Salvage],[Book Value Cart],[Capital Gain Cart],[Capital Gain Tax],[Net after tax salvage],[FCF],[PV of each FCF],[NPV],[r,,,,,]] fill in excel sheet with answer
image text in transcribed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Future For Investors

Authors: Jeremy Siegel

1st Edition

140008198X, 978-1400081981

More Books

Students also viewed these Finance questions