The Nook Caf is thinking about expanding to a location inside the Bauer School of Business. They

The Nook Café is thinking about expanding to a location inside the Bauer School of Business. They have the option to sign a 5-year lease and pay $45,000 per year for the space.

 

To get started, they will need to invest in some equipment worth $25,000 (espresso machine, refrigerator, cash register, etc). They expect to depreciate these machines on a straight-line basis over 10 years. They believe they can sell the machines for $11,000 after 5 years. Additionally, they will need $5,000 for inventory and other working capital needs. 

 

They believe their yearly sales will start at $115000. They will need to hire a few student employees for a total of $80,000.

They think their sales will grow by 8% per year. Their working capital will rise slightly at 4% per year. Finally, their employee wages will grow at 5% per year.

 

If the tax rate is 17% and their discount rate is 12%, what is the NPV of this project?

Answer rating: 100% (QA)

SOLUTION The formula for calculating Net Present Value NPV is as follows NPV CFt 1 rt C0 Where CFt represents the net cash flow in year t including revenues expenses depreciation and taxes r represent... View the full answer