Question
You are considering opening a crepe stand, which you are thinking of operating yourself until your retirement in 25 years. The initial investment is $[(2+9+5)*15,000],
You are considering opening a crepe stand, which you are thinking of operating yourself until your retirement in 25 years. The initial investment is $[(2+9+5)*15,000], which you could depreciate over 25 years using the straight-line method to a salvage value of $25,000. You can expect to sell the crepes at $[2+2.5] each. Operating expenses are estimated to be [60+1+6]% of the revenues. The project feasibility study, which you did last year, cost $5,000. The stand requires an immediate investment in working capital of $2,500 which youll have to maintain throughout the 25 years and which you will recover at the end of 25 years. You plan to sell the stand for $20,000 at the end of 25 years. The corporate tax rate is [2+9+20]%, and the opportunity cost of capital is 10%. a) How many crepes should you expect to sell each year so that it would be worthwhile for you to quit your job with an annual salary of $[(80+2+6)*1,000] after tax, which you expect to remain constant for the next 25 years, and open the crepes stand? NOTE: Provide your answers with four decimals after the dot. If your answer is 20 you must enter 20.000. b) Does that look like a good deal? NOTE: Make an argument if you think is feasible to sell the amount of crepes based in your answer for a).
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