Darren Mack owns the Gas n Go convention store and gas station. After hearing a marketing lecture,

Question:

Darren Mack owns the €œGas n€™ Go€ convention store and gas station. After hearing a marketing lecture, he realizes that it might be possible to draw more customers to his high-margin convenience store by selling his gasoline at a lower price. However, the €œGas n€™ Go€ is unable to qualify for volume discounts on its gasoline purchases and therefore cannot sell gasoline for profit if the price is low€™ ered. Each new pump will cost $95,000 to install, but will increase customer traffic in the store by 1,000 customers per year. Also, because the €œGas n€™ Go would be selling its gasoline at no profit, Darren plans on increasing the profit margin on convenience store items incrementally over the next five years. Assume a of 8 percent. The projected convenience store sales per customer and the protected profit margin for the next five years are as follows:

a. What is the NPV of the next five years of cash flows if Darren had four new pumps installed?
b. If Darren required a payback period of four years, should he go ahead with the installation of the newpumps?

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal... Payback Period
Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...