Modern Designs Ltd. is considering opening up a new store in Perth. The store will have a life of 25 years. It will generate annual sales of 4,700 machines, and the price of each machine is $3,500. The annual sales of spare parts will be $655,000 and the operating expenses of the store, including labour & rent, will amount to 35% of the revenues from machines. The initial investment in the store will equal $20 million & will be fully depreciated on a straight line basis over the 20-year life of the store. The residual value of the store at the end of 25 years will be $2 million. The company will need to invest $2.5 million in additional working capital immediately, and recover it at the end of the investment. The company’s tax rate is 30%. The opportunity cost of opening up the store is 9%.

Would you recommend Modern Designs Ltd. to open this new store in Perth?

Why or why not? Please substantiate your answer with calculations clearly.

that's just what the question said about 20 years and 25 years tho, don't ask me why they are 20 years and 25 years ~ i dont know.

Answer rating: 100% (QA)

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