A small discount perfume shop is available for sale at a nearby factory outlet centre. The business can be purchased from its current owner for $97,500. The following information relates to this purchase:

a. Of the purchase price, $42,500 would be for fixtures and other depreciable items. The remainder would be for the company’s working capital (inventory, accounts receivable, and cash). The fixtures and other depreciable items would have a remaining useful life of at least 12 years, but would be depreciated for tax reporting purposes using a CCA rate of 20%. At the end of 12 years, these depreciable items would have a negligible salvage value; however, the working capital would be released for reinvestment elsewhere.

b. Store records indicate that sales have averaged $200,000 per year, and out-of-pocket costs have averaged $185,000 per year (not including income taxes). These out-of-pocket costs include rent on the building, cost of goods sold, utilities, and wages and salaries for the sales staff and the store manager. The manager would handle the day-to-day operations of the store.

c. The prospective purchaser’s tax rate is 35%.

d. The purchaser wants an after-tax return on the investment of at least 8%.

Required:

Should the shop be purchased? (Round all dollar amounts to the nearest whole dollar.)