Question: 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

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?

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

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