You own a restaurant and are considering buying a liquor license. You estimate that it will cost you $ 300,000 to buy a five-year license and construct a bar, and that you will generate $ 40,000 in after-tax cashflows each year for the next five years. (The cost of the license is capitalized and the cashflows already reflect the depreciation)

If your cost of capital is 12%, estimate the net present value of buying a liquor license. (There is no salvage value at the end of the 5^th year)

Assume now that the bar will bring in additional customers to your restaurant. If your after-tax operating margin is 40%, how much additional revenue would you have to generate each year in your restaurant for the liquor license to make economic sense?