Chris Paul inherited a plot of land. He can either convert it to a parking lot...

 

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Chris Paul inherited a plot of land. He can either convert it to a parking lot or build a gas station on it. The parking lot will cost $50K to start and the gas station will cost $250K to start. Chris will sell the business in the 5th year. The cash flows will look like: Parking Lot Initial Cost $ 50,000 Year 1 $ Year 2 Year 3 Year 4 Year 5 Gas Station $250,000 $ 4,000 $ 5,000 7,000 $ 20,000 $ 8,000 $50,000 $ 8,000 $ 70,000 $ 68,000 $ 320,000 Part 1 - Which one should he do if his required rate of return is 10% Part 2 - Which one should he do if his required rate of return is 15% Part 3-At which required rate of return would he not care which one to do? Chris Paul inherited a plot of land. He can either convert it to a parking lot or build a gas station on it. The parking lot will cost $50K to start and the gas station will cost $250K to start. Chris will sell the business in the 5th year. The cash flows will look like: Parking Lot Initial Cost $ 50,000 Year 1 $ Year 2 Year 3 Year 4 Year 5 Gas Station $250,000 $ 4,000 $ 5,000 7,000 $ 20,000 $ 8,000 $50,000 $ 8,000 $ 70,000 $ 68,000 $ 320,000 Part 1 - Which one should he do if his required rate of return is 10% Part 2 - Which one should he do if his required rate of return is 15% Part 3-At which required rate of return would he not care which one to do?

Answer rating: 100% (QA)

Question NPV OF PARKING LOT YEAR CASH FLOW DISCOUNTING FACTOR DISCOUNTED CASH FLOW 0 50000 1000 5000... View the full answer