Question: As a potential investment you are evaluating a country western
As a potential investment, you are evaluating a country/western night club called “Pork Rinds and Silk Purses”. You estimate a cost of $7,500,000 will be required to establish the facility. Also, you estimate that the concept will provide before-tax cash flows of $3,000,000 per year. Your firm’s tax rate is 35%.You plan to depreciate the $7,500,000 to zero over six years using straight-line depreciation. This project will require working capital of $12,000 which will be returned when the project is terminated. You plan to close the operation at the end of the six years and sell the used equipment for $1,000,000. Your cost of capital is 13%. Calculate the NPV to determine if you should proceed with the project.
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