You are a donor to a local nonprofit organization HelpAVet and have been asked to provide a
Question:
You are a donor to a local nonprofit organization HelpAVet and have been asked to provide a recommendation about a project. Angela Ash, the administrator of HelpAVet, has just inherited money from her mother's estate. She is considering investing part of these funds in a small catering operation to complement HelpAVets current social action projects. She hopes to help jobless veterans by giving them a new skill. HelpAVet will not pay need to pay any taxes related to the project.
- She will need to purchase two delivery vans, pots, pans, computers, and various other equipment costing $275,000 to start the business right now and
- She will be required to set aside $30,000 in working capital that will be released at the end of the project (at the end of year 6)
- Angela's marketing studies indicate that the annual cash sales revenue from the project will amount to:
| Sales Year 1 | $90,000 |
| Sales Year 2 | $100,000 |
| Sales Year 3 | $110,000 |
| Sales Year 4 | $120,000 |
| Sales Year 5 | $130,000 |
| Sales Year 6 | $140,000 |
- She will need to purchase the food from local farmers as follows:
| Cost of food year 1 | $27,000 |
| Cost of food year 2 | $30,000 |
| Cost of food year 3 | $33,000 |
| Cost of food year 4 | $36,000 |
| Cost of food year 5 | $39,000 |
| Cost of food year 6 | $42,000 |
- She will need to pay rent and utilities on the building to be used to prepare the food.
| Cost for Rent & Utilities Year 1 | $19,000 |
| Cost for Rent & Utilities Year 2 | $19,000 |
| Cost for Rent & Utilities Year 3 | $19,000 |
| Cost for Rent & Utilities Year 4 | $19,000 |
| Cost for Rent & Utilities Year 5 | $19,000 |
| Cost for Rent & Utilities Year 6 | $19,000 |
- Angela will use volunteers so she will not need to pay labor. She hopes to use the catering business to teach new skills to the unemployed.
- Angela wants to operate the catering business for only six years.
- She estimates that the vans could be sold at the end of the sixth year for $10,000
- Ignore taxes and depreciation as HelpAVet is a tax-exempt organization.
- HelpAVet uses a required rate of return of 5%
Compute the net present value of the investment. Your answer should be in the form $99.99 (round to the nearest cent).
Compute the Internal Rate of Return for the project. You should show it as percentages with two points after the decimal - for example, 29.59%.
Expert Answer:
To compute the net present value NPV and internal rate of return IRR for the project we need to calc... View the full answer
