Question: a) A store will cost $600,000 to open. Variable costs will be 46% of sales and fixed costs are $200,000 per year. The investment costs

a) A store will cost $600,000 to open. Variable costs will be 46% of sales and fixed costs are $200,000 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 10% and the tax rate is 40%. Find the operating cash flow if sales revenue is $750,000 per year.

b) Using an operating cash flow of 147,000, calculate the Net Present Value. Should the store be opened?

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