A local gas station owner, Michael, is looking to invest in LED lighting displays around his...
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A local gas station owner, Michael, is looking to invest in LED lighting displays around his fuel pumps to distinguish his station from the one just down the street. He has received several bids from credible companies, none of which have worked with Michael before. He knows this type of investment is needed to keep his business looking current and trendy, but he is anything but "pumped" about spending this much money on a lighting display. Based on significant research and discussions with friends in the industry, he makes the following estimates to go along with each bid. Cost of lighting, installed Additional annual revenues Additional annual operating costs Bid 1 $81,000 14,700 1,600 Bid 2 $101,100 16,700 2,600 Bid 3 $74,100 14,900 3,300 The useful life of all three lighting schemes is 15 years, at which point none of them would have any salvage value. Michael's station is subject to a 25% tax rate and has a required rate of return of 8% on new projects. A local gas station owner, Michael, is looking to invest in LED lighting displays around his fuel pumps to distinguish his station from the one just down the street. He has received several bids from credible companies, none of which have worked with Michael before. He knows this type of investment is needed to keep his business looking current and trendy, but he is anything but "pumped" about spending this much money on a lighting display. Based on significant research and discussions with friends in the industry, he makes the following estimates to go along with each bid. Cost of lighting, installed Additional annual revenues Additional annual operating costs Bid 1 $81,000 14,700 1,600 Bid 2 $101,100 16,700 2,600 Bid 3 $74,100 14,900 3,300 The useful life of all three lighting schemes is 15 years, at which point none of them would have any salvage value. Michael's station is subject to a 25% tax rate and has a required rate of return of 8% on new projects.
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To determine the present value of the future cash flows for each bid and then calculate the NPV of each bid well use the formula for calculating the p... View the full answer
Related Book For
Auditing a business risk appraoch
ISBN: 978-0324375589
6th Edition
Authors: larry e. rittenberg, bradley j. schwieger, karla m. johnston
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