Question
Rick is considering expanding his pizza empire and opening up a new upscale pizza shop. The life of the pizza shop is expected to be
Rick is considering expanding his pizza empire and opening up a new upscale pizza shop. The life of the pizza shop is expected to be 10 years, at which time Rick plans to retire. Rick is unsure of the proper discount rate to use (as he has not yet studied Chapter 14 of the textbook), but he believes it is either 8% or 12%. Likewise, he thinks his IRR Hurdle rate is 9% or 11%. Rick has developed two scenarios for the projected cash flows of his pizza empire. The cash flows are shown below. Prepare an analysis and state whether or not you believe that Rick should open up the new shop. Submit a Word document, but include any analysis that you believe is appropriate from Excel.
Year 0 1 4 Nm 0 m Scenario 1 Scenario 2 (400,000) (500,000) 20,000 25,000 30,000 40,000 45,000 40,000 50,000 40,000 50,000 40,000 50,000 40,000 50,000 40,000 50,000 40,000 50,000 40,000 600,000 300,000 5 6 8 9 10
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