Question
The SAI Inc. is planning to set up a new store. The startup cost of the store is $500,000. The new store will generate revenue
The SAI Inc. is planning to set up a new store. The startup cost of the store is $500,000. The new store will generate revenue of $265,000 each year for the next six years and all associated costs including costs of merchandise, labor, utilities, and taxes will be $130,000 per year. The store will require upgrade to the store front every two years at a cost of $35,000 each time. At the end of the six years, the store inventory will be sold off at a super sale and the company will cease operation, to receive $10,000 on after-taxes base. The company's cost of capital is 20 percent. The level of risk of the product sales is the same as the overall risk for the company.
What is the NPV of the new store decision?
| A. | $(88,892) |
| B. | $(95,590) |
| C. | $11,108 |
| D. | $(6,523) |
| E. | $(72,013) |
| F. | $(111,194) |
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