Jane Summers has just inherited millions from her mother's estate. She is considering investing part of these funds in a small catering business. She would need to purchase a delivery van, equipment, and inventory costing $150,000 to equip the business.  Jane's marketing studies indicate that the annual net cash inflow from the business will amount to $36,000.  Jane wants to operate the catering business for only 6 years. She estimates that the equipment will have a $10,000 salvage value at the end of that time and that she will just retire and close down the business. Jane's required rate of return is 10%.  (Note: relevant present value tables are in the textbook in ch 26 at pg 1121, or use from other sources, as desired.)

Required:
Compute the net present value of this investment.  What would you advise Jane based on your calculations? Show your calculations, including any present value table amounts.

Answer rating: 100% (QA)

In these type of situations where the management is to decide whether to invest in the n... View the full answer