Middleton Classics, a chain of exclusive furniture stores, is considering renting space in a new shopping mall. It is anticipated that this rental will require an investment in fixtures and equipment costing $500,000, with an estimated salvage value of $25,000 at the end of its useful life in ten years. The new store is expected to generate an annual net cash flow of $110,000. The owner desires a 20% annual return on investment and wants a payback period of less than four years. Ignore the impact of taxes.

REQUIREMENT

Use the worksheet called CAPBUD that follows these requirements to evaluate this investment. Note that the investment information is already entered in the Data Section of the worksheet. Note also that there is a scratch pad at the bottom of the worksheet. The numbers in the scratchpad are needed as input to the net present value and internal rate of return calculations. Carefully review Appendix A in Excel Quick for instructions on using the =NPV and =IRR functions.