Question
Steves Sub Stop (Steves) is considering investing in toaster ovens for each of its 120 stores located in the southwestern United States. The high-capacity conveyor
Steves Sub Stop (Steves) is considering investing in toaster ovens for each of its 120 stores located in the southwestern United States. The high-capacity conveyor toaster ovens, manufactured by Lincoln, will require an initial investment of $15,000 per store plus $500 in installation costs, for a total investment of $1,860,000. The new capital (including the costs for installation) will be depreciated over five years using straight-line depreciation toward a zero salvage value. Steves will also incur additional maintenance expenses totaling $120,000 per year to maintain the ovens. At present, firm revenues for the 120 stores total $9 million, and the company estimates that adding the toaster feature will increase revenues by 10%.
A. If Steves faces a 30% tax rate, what expected project FCFs for each of the next five years will result from the investment in toaster ovens.
B. If Steves uses a 9% discount rate to analyze its investments in its stores, what is the projects NPV?
I know how to do these by hand and via excel formulas, but can you show me a way to do it via financial calculator? Please provide step by step. For reference, I am using Texas Instrument BA II plus financial calculator.
Thank you :)
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