Question
Walters Web Designs has been operating out of Walters home. Walter has now decided to establish a more professional appearance. A small building in a
Walters Web Designs has been operating out of Walters home. Walter has now decided to establish a more professional appearance. A small building in a CBD has become available. The building, which has a useful life of 25 years, will cost $250,000. Walter will hire an assistant to handle phone calls, email, invoicing and other office tasks. The salary plus benefits will total $40,000 per annum. Other office operating costs should be $25,000 p.a. With the extra time and visibility he gains from these changes, Walter expects to increase his revenue by $125,000 per annum. Walter has a required rate of return of 8%. Required:
1- Calculate the payback period for the move to the new building.
2- Calculate the net present value of this investment.
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