Two-part question:

A gas station owner is considering installing a gas pump. The necessary equipment is estimated to cost $100,000, and it will be depreciated over 5 years using the straight-line method (with zero estimated residual value at the end of 5 years). Cash revenues each year would be $40,000, and cash expenses $15,000. The Simple Rate of Return (SRR) would be:

25%

5%

20%

15%

Part 2:

A company plans to open a store in a certain location. The store will require an increase in working capital of $30,000, and purchase of equipment of $80,000 (assume the equipment have no residual value). The store will be rented for 7 years and is expected to produce an annual cash flow (after rent) of $25,000. The working capital will be released after 7 years. Required rate of return is 10%. The NPV of the project will be

$65,000

$43,625

$27,090

$21,700

Periods 4% 5% 6% 7% 8% 9% 10% 1 2 3 4 5 0.962 0.952 0.943 0.935 0.926 0.917 0.909 1.886 1.859 1.833 1.808 1.783 1.759 1.736 2.775 2.723 2.673 2.624 2.577 2.531 2.487 3.630 3.546 3.465 3.387 3.312 3.240 3.170 4.452 4.329 4.212 4.100 3.993 3.890 3.791 6 7 8 9 10 5.242 5.076 4.917 4.767 4.623 4.486 4.355 6.002 5.786 5.582 5.389 5.206 5.033 4.868 6.733 6.463 6.210 5.971 5.747 5.535 5.335 7.435 7.108 6.802 6.515 6.247 5.995 5.759 8. 111 7.722 7.360 7.024 6.710 6.418 6.145 11 12 13 14 15 8.760 8.306 7.887 7.499 7.139 6.805 6.495 9.385 8.863 8.384 7.943 7.536 7.161 6.814 9.986 9.394 8.853 8.358 7.904 7.487 7.103 10.563 9.899 9.295 8.745 8.244 7.786 7.367 11.118 10.380 9.712 9.108 8.559 8.061 7.606 16 17 18 19 20 11.652 10.838 10.106 9.447 8.851 8.313 7.824 12.166 11.274 10.477 9.763 9.122 8.544 8.022 12.659 11.690 10.828 10.059 9.372 8.756 8.201 13.134 12.085 11.158 10.336 9.604 8.950 8.365 13.590 12.462 11.470 10.594 9.818 9.129 8.514