Lord Farquaad is considering two business ideas and require you to advise him which of the businesses are feasible and he should pursue. He is considering a fast-food outlet in the central business district and a food truck, which he feels would compliment his fast-food business, to sell food at sporting and other events. His research has revealed the following cash flow projections. An economist told him to use a 6% inflation rate and that he considers a 10% return over a six-year term as a good investment.

                                                   Fast-food outlet          Food truck

Cash investment required         2 500 000                      750 000

Equipment life span                    15 years                         8 years

First year net cash flow                233 867                         213 450

 Using discounted cash flows advise Lord Farquaad on which of the businesses are feasible and worth pursuing. 

Lord Farquaad wants to know which of the two opportunities will he get his money back over the shortest time.

Answer rating: 100% (QA)

To determine which of the two business opportunities is feasible and worth pursuing we will calculate the Net Present Value NPV for both the fastfood outlet and the food truck using a 10 discount rate ... View the full answer