An entrepreneur is planning to open a pharmacy two years from now. She estimates that the pharmacy
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Question:
An entrepreneur is planning to open a pharmacy two years from now. She estimates that the pharmacy will have revenues of $1,500 if demand is high, but only of $700 if demand is low. The gross present value of these revenues is of $1,000. The investment cost that has to be undertaken today is of $1,150. If the pharmacy is successful, the entrepreneur will expand its business, by opening another pharmacy. The additional investment cost is $1,200. The new pharmacy will have similar expected cash flows to the first one. The risk free rate of return is 7% and the risk adjusted discount rate is of 12%.
- Compute the basic NPV of the project.
- Should the entrepreneur invest in the project if she has no option to expand the business?
Related Book For
Operations Management in the Supply Chain Decisions and Cases
ISBN: 978-0073525242
6th edition
Authors: Roger Schroeder, M. Johnny Rungtusanatham, Susan Goldstein
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