Question
Vanessa Jacobs is considering opening a baking supply store. She would need $140,000 to equip the business and another $65000 for inventory and working capital
Vanessa Jacobs is considering opening a baking supply store. She would need $140,000 to equip the business and another $65000 for inventory and working capital requirements. Rent on building used by the store will be $28000 per year. Vanessa estimates that the annual cash inflow from the business will amount to $95000 . In addition to building rent, annual cash outflow for operating cost amount to $37000. Vanessa plans to operate the business for seven years. She estimates that the equipment and other capital assets could be sold in seven years from 10% of their original cost. The working capital will be fully released for other purposes at the end of the seven-year project. Vanessa uses discount rate of 14%.
Would you advise Vanessa to make this investment? Use the Net Present Value Method. Present Value of $1.
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