A very popular coffee shop in Champaign, IL is considering expanding to offer food for their customers. So far, they have spent $10,000 on market research and determined that there would be substantial demand for their food. The cooking equipment would cost $200,000 and has an economic life of ten years and will be fully depreciated by the straight-line method. They predict that they will sell 10,000 food dishes per year, with each costing an average of $8.00 to make (including labor costs) and priced at an average price of $12.00. Assume that the discount rate is 12 percent and the tax rate is 20 percent. Should the coffee shop make the purchase? Discuss.

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To determine if the coffee shop should make the purchase of the cooking equipment for expanding thei... View the full answer