Super Fresh Grocery operates a chain of 40 grocery stores. Currently the company is considering starting a new division, Fresh Grocer.com, to provide home delivery services. Customers will be able to order groceries by phone or using the Internet and FreshGrocer.com will deliver them within 24 hours at a price guaranteed to be identical to the prices charged in the company’s stores.

The company has projected revenue and cost related to this business for the next seven years as follows:

The business will require an initial investment in delivery trucks and other equipment of $500,000. The trucks and equipment will be depreciated over a seven-year life using straight-line depreciation with a residual value of $80,000.

Required
Assume that Super Fresh has decided to limit its analysis to seven years. Calculate the net present value of the new business using a 14 percent required rate of return. Should Super Fresh make the investment in the newbusiness?

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Year1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Revenue $1,700,000 $1,780,000 $1,825,000 $1,850,000 $1,940,000 $2,050,000 $2,160,000 Less expenses: Cost of merchandise 20,000 ,175,000 1,200,000 1,200,000 1,260,000 1,300,000 1,375,000 350,000 365,000 380,750 397,000 414,652 432,884 462,030 60,000 60,000 60,000 23,333 21,667 20,917 28,000 27,015 28,783 27,970 1,553,333 1,621,667 1,661,667 1,685,000 1,761,667 1,821,667 1,925,000 158,333163,333 165,000178,333228,333 235,000 58,667 63,333 65,333 66,000 71,333 91,333 94,000 $88,000 $ 95,000 $ 98,000 $ 99,000 107,000 S137,000 141,000 Salaries Depreciation 60,000 60,000 60,000 60,000 Miscellaneous Total expense Income before taxes 46,667 Taxes at 40% Net income