Question
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
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 expect that you can sell 2000 drinks per week during the 30-week academic year (each academic year contains 30 weeks) at an average price of $2.25 per drink. The cost related to producing each drink is 1.25. The stand and espresso machine will cost about $6000. You will generate $200 in accounts payable today and the account payable will stay at these levels through year 3 and drop to zero by the end of year 4. You hope to sell your cart for about $3000 when you leave school. If your discount rate is 12% 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.
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