Rick has been inspired by a recent short vacation in Florida and has decided to open a Pizza Bagel restaurant. Rick anticipates that the upfront costs for his equipment will be $45,000, which will have a CCA rate of 30%. While Rick was enjoying Boca, he realized that he is not at all suited to the retired lifestyle, nor will he be for at least 25 more years, and that is how long he hopes that his Pizza Bagel shop will stay in business. At that time, the Salvage Value of the equipment he anticipates will be $20,000.

The initial upfront Net Working Capital needs for the business will be $15,000 and thereafter will be 20% of total Sales. Rick expects to recover his investment in Net Working Capital when the shop closes up for good.

Rick plans to sell two different products; the Tiger Pizza Bagel and the Tigress Pizza Bagel. First year unit sales of the Tiger Bagel will be 9000 bagels, and the Tigress will have first year unit sales of 7000. The growth of unit sales is expected to increase 20% until year 5, at which time the unit growth will be 4% thereafter. The initial price of the Tiger will be $5.00 and the Tigress will cost $4.50. Variable costs for both bagels will be 60% of Sales. Price inflation is expected to be 3% per year. Fixed costs for the first year are expected to be $35,000 and Fixed Costs will increase with inflation.

The tax rate is 25%, while the Discount Rate is 12%. (Note a negative tax is counted for capital budgeting purposes as a negative number this is due to the fact that any losses from the Pizza Bagel business will be used to reduce taxes in Ricks other businesses.)

Should Rick invest in the Pizza Shop? Beside the NPV, be sure to calculate the IRR and the Payback Period.