A store will cost $675,000 to open. Variable costs will be 34% of sales and fixed costs are $120,000 per year. The investment costs will be depreciated straight-line over the 10 year life of the store to a salvage value of zero. The opportunity cost of capital is 5% and the tax rate is 40%.

a. Find the operating cash flow each year if sales revenue is $650,000 per year.


b. Using an operating cash flow of 212,400, calculate the Net Present Value. Should the store be opened?

Answer rating: 100% (QA)

a The operating cash flow each year can be calculated as follows Sales revenue 650000 Variable costs ... View the full answer