Question

Palermo Pizzeria is considering expanding operations by establishing a delivery business. This will require the purchase of an oven that will cost $50,000, including installation. The oven is expected to last five years, have a $5,000 residual value, and will be depreciated using the straight-line method. Cash flows associated with the delivery business are as follows:

.:.
In addition to the above, there are tax consequences related to the new business, and the company’s tax rate is 40 percent.

Required
Calculate the internal rate of return for the delivery business. Should Palermo Pizzeria invest in the delivery business if the required rate of return is 10 percent?



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  • CreatedSeptember 23, 2013
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