You own a neighborhood grocery store, and you are considering opening a one-of-a-kind restaurant on the premises. The life of the project is estimated to be five years and you have gathered the following information for your assessment of the feasibility of the investment:

• The restaurant will cost $175,000 to open; it will have a five-year life and be depreciated straight line over the period to a salvage value of $10,000.
• The sales at the restaurant are expected to be $75,000 in the first year and grow 10% a year for the following four years.
• The operating expenses will be 40% of revenues.
• Net working capital amounting to 5% of revenues has to be maintained; investments in working capital are made at the beginning of each year.
• The tax rate is 40%.
• Cost of Capital is 13%.

The restaurant is expected to generate additional sales of $25,000 each year for the next five years for the grocery store, and the pretax operating margin on grocery sales is 40%.

1. Estimate the NPV of the restaurant without the additional grocery sales.
2. Estimate the net present value of the cash flows accruing from the additional grocery sales. Would you open the restaurant?