Suppose you just became a freshman student and decided to open a new coffee shop on the NSU Campus selling coffee and cookies (open every morning and weekends only) for the next for years until you graduate. I can get a loan for your new coffee shop from a local bank with an annual interest of 8 percent (8% per year). Your total loan amount to invest in your new coffee shop is $100,000 and you expect to make a profit of 50,000 in one year's time, 75,000 in two year's time, 90,000 in three years' time and 100,000 in four years' time.

1) Compute the present value of each year for the next four years. What is your estimated total present value (PV) of your coffee shop?

2) Suppose you can become a partner with other friends in your class to open a pizza restaurant in Downtown Norfolk by contributing $50,000 only without opening your own coffee shop. You can get a loan of $50,000 with the same interest rate from the same local bank at 8% per year. Your annual income from your investment in the Pizza restaurant is $50,000 for the next four years. What is the total present value of your four years' income?.

3) By comparing the costs/expenses and benefits/income from two options (coffee shop vs pizza restaurant), which project would you choose to maximize your income/profit?. Why?

Answer rating: 100% (QA)

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