You are considering starting a business selling Hot Dogs from a food truck on campus for the next 10 years, at which point you will finally graduate and move out of Pullman (its okay, that underwater basket weaving course slows us all down). You can buy a grill and an old food truck for $10,000, which you will depreciate using straight line depreciation. The day you graduate you will sell the equipment for $1000 online. You will need $2,000 in net working capital. You expect to sell 4,500 hot dogs a year, at a price of $2.50, with variable costs of $0.45 per hot dog, you also expect sales to increase by 10% in years 2 and 3, and 5% after that. You must pay Washington State University $5000 a year for permission to sell on campus, and you will pay yourself a salary of $4000. The corporate tax rate is 34% and you require a 12% rate of return. Your excel sheet should have two tabs, one for the base case, and the best case.

A. Find the NPV, IRR, and PI of the project. Should you sell the Hot Dogs?

B. What is the cash break-even, the accounting break-even, and Degree of Operating Leverage? (Use operating cash flow from year 1)

C. Best case scenario (financially this is the best case scenario. However you may or may not agree if this is actually the best case scenario): The WSU football team goes a perfect 15-0 and wins the national championship. As a result more people buy football tickets, and sales increase by 20% in the second year, 10% in year 3 and 5% thereafter. You also increase your sales price to $3.50 a hotdog, in year 2 and keep it at that price. Now what is your NPV?