You own a restaurant and are considering buying a liquor license. You estimate that it will cost you $350,000 to buy a 7-year license and construct a bar, and that you will generate $50,000 in after-tax cash flows each year for the next seven years. (The cost of the license is capitalized and the cash flows already reflect the depreciation).

1. If your cost of capital is 8%, estimate the net present value of buying a liquor license. (There is no salvage value at the end of the 7^th year)

1. Assume now that the bar will bring in additional customers to your restaurant. If your after- tax operating margin is 45%, how much additional revenue would you have to generate each year in your restaurant for the liquor license to make economic sense?