You own a small piece of commercial land near a university. You are considering what to do with it. You have been approached recently with an offer to buy it for $600,000. You are also considering three alternative uses of the land for yourself a laundromat, a bakery, and a bike shop. You assume that you would operate your choice indefinitely, eventually leaving the business to your children. Which is the best business? Blank Initial Cash flow in Growth Cost of Investment the First Year rate capital Laundromat $200,000 $35,000 2.0% 7.0% Bakery $750,000 $45,000 3.5% 6.5% Bike Shop $800,000 $40,000 4.5% 7.0% A Toronto convenience store owner is contemplating putting a large neon sign over his store. It would cost $50,000, but is expected to bring an additional $14,000 of profit to the store every year for five years. Would this project be worthwhile if evaluated using a payback period of two years or less and if the cost of capital is 9%? No, since the overall NPV is negative Yos, since the value of the cash flows into the store, in present dollars, are greater than the initial investment Yes, since the cash flows after two years are greater than the initial investment No, since the value of the cash flows over the first two years are less than the initial investment