Ronnie Arthur is a serial entrepreneur from Saginaw, MI, who is trying to decide whether to spend his time and investment capital on his barbershop or on his clothing line. He has decided to engage in some capital budgeting analysis in order to help him make this decision. Ronnie has determined the following predicted costs and benefits of devoting his resources to each business:

	Barbershop	Clothing Line
Initial Investment	$ 100,000	$ 32,000
Working Capital Required	$ 50,000	$ 20,000
Yearly Depreciation	$ 12,500	$ 4,000
Enterprise Value at End of 8 years	$ 100,000	$ 75,000
Annual Net Cash Inflows	$ 25,000	$ 16,000
Required Rate of Return	10%	15%

What is the payback period for each chain? (1 point)

What is the Net Present Value of each chain? (9 points)

What is the Project Profitability Index of each chain? (1 point)

What is each chains simple rate of return? (1 points)

in Barbershop Clothing Line S 100,000 $ 32,000 S 50,000 $ 20.000 12,500 $ 4,000 S 100,000 S 75,000 $ 25,000 $ 16,000 10% 15% Barbershop 10 1 2 3 4 15 6 7 18 Exam Question 2 3 Initial Investment 4 Working Capital Required 5 Yearly Depreciation Enterprise Value at End of 8 years 7 Annual Net Cash Inflows 8 Required Rate of Return 9 10 Chain A 11 Payback Period 12 (Discount Factor Here) 13 (Discount Factor Here) 14 PV of Cash Inflows 15 PV of Cash Outflows 16 Net Present Value 17 Project Profitability Index 18 Simple Rate of Return 19 20 Chain B 21 Payback Period 22 (Discount Factor Here) 23 (Discount Factor Here) 24 PV of Cash Inflows 25 PV of Cash Outflows 26 Net Present Value 27 Project Profitability Index 28 Simple Rate of Return 29 30 31 32 33 34 Clothing Line 0 1 2 3 4 5 6 7 8