To open a new store you must purchase $370 in equipment. Shipping of the equipment will cost $50 and installation of the equipment will be $40. In addition to the equipment, you will build a new building with an all-in price of $1000. you bought the land for the store for $200 five years ago. The modifications and equipment are depreciated using the 5-year MACRS schedule. You will operate the store for four years, and then expects to sell the store to an investor for $1,200 plus any working capital. The firm will have some one-time expenses in year 1 of $170, primarily licenses and legal fees. To operate the store, you will need an increase in Inventory of $17, an increase of Accounts Receivables of $24, and will have an increase in Accounts Payable of $49. Working capital will be recovered when we sell the store.

Annual sales are as follows; $400 in year 1, $1,200 in year 2, $2,200 in year 3, and $2,500 in year 4. Cost of Goods Sold (excluding overhead, depreciation, and lease payments) are 40% of annual sales. Production labor is 20% of sales. To manage the company, executives and administrators must be hired, at an annual fixed cost of $260. Property taxes and alcohol licenses are $300 per year.

you have an agreement for a 3-year 6% amortized Small Business Administration Loan to finance part of the project. The firm needs new equity investors to fund the expansion and the store has only been able to find one equity investor. Both SBA and this equity investor requires that the firm have audited financial statements. The outside investor gets to choose the auditor and the auditor would cost the company $20 per year. The firms tax rate is 20%. The cost of capital is 13%.

What are the Initial Cash Flows in Year 0?