You are the owner of the local record store, and you are considering opening a coffee...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
You are the owner of the local record store, and you are considering opening a coffee shop in a vacant area in the back of the store. You estimate that it will cost you $50,000 to set up the store and that you will generate $12,000 in after-tax cash flows for the life of the store (which is expected to be 8 years.) The one concern you have is that you have limited parking; by opening the coffee shop you run the risk of not having enough parking for customers who shop at your record store. You estimate that the lost sales would amount to $5,500 per year and that your after-tax operating margin on sales at the record store is 55%. If your discount rate is 10%, what is the NPV of opening the coffee shop? You are the owner of the local record store, and you are considering opening a coffee shop in a vacant area in the back of the store. You estimate that it will cost you $50,000 to set up the store and that you will generate $12,000 in after-tax cash flows for the life of the store (which is expected to be 8 years.) The one concern you have is that you have limited parking; by opening the coffee shop you run the risk of not having enough parking for customers who shop at your record store. You estimate that the lost sales would amount to $5,500 per year and that your after-tax operating margin on sales at the record store is 55%. If your discount rate is 10%, what is the NPV of opening the coffee shop?
Expert Answer:
Answer rating: 100% (QA)
To calculate the net present value NPV of opening the coffee shop we need to consider the initial in... View the full answer
Related Book For
Posted Date:
Students also viewed these finance questions
-
You are the owner of a small hard ware store, and you are considering opening a gardening store in a vacant area in the back of your present store. You estimate that it will cost you $50,000 to set...
-
What is meant by "new regionalism"? Detail an example of an area that has adopted new regionalism where it has been successful. Detail an example of an area that has adopted new regionalism where it...
-
When a parameter is changed, does this affect the argument that was passed into the parameter?
-
Here are book- and market-value balance sheets of the United Frypan Company: Assume that MM's theory holds except for taxes. There is no growth, and the $40 of debt is expected to be permanent....
-
Write the y" - 4y + y 3 = 0 as a system, solve it for y 2 as a function of y 1 , and sketch or graph some of the trajectories in the phase plane. -2 C = 3 C = 4 ON 2 C=5 Fig. 98. Trajectories in...
-
Consider the calculation of an external rate of return (ERR). The positive cash flows in the cash flow profile are moved forward to \(t=n\) using what value of \(i\) in the \((F \mid P i, n-t)\)...
-
On May 1, 2010, Newby Corp. issued $600,000, 9%, 5-year bonds at face value. The bonds were dated May 1, 2010, and pay interest semiannually on May 1 and November 1. Financial statements are prepared...
-
2.1 Design and determine data storage requirements from NoSQL data store according to selected vendor technology and business requirements
-
Management of Blossom, Inc., an electronic games manufacturer, is planning to purchase flash memory from one of two sources. Kyoto, Inc., quotes a price of 7,200 per gigabyte. The current exchange...
-
If a closed transformer has an input voltage of 12V and a turn ratio of 3:10, what is the secondary voltage? Does the amperage increase or decrease on the secondary side explain.
-
Using f(x) = x 7 f(-2) 1 6 Find
-
A company is considering investing in a project that is expected to return $270,000 four years from now. How much is the company willing to pay for this investment if the company requires a 10%...
-
You are long a $85 call on 100 shares of GE with a premium of $6.11/share. When the option expires, GE is trading at $82.64. The premium (paid) collected on this option is $__________. (dollars,...
-
You owned an investment that returned 12% over the last year. According to the latest Consumer Price Index (CPI) numbers, inflation was 3% over the same period. What was your exact real rate of...
-
Consider a 500-N weight suspended by two wires as shown in the figure. Find the magnitude and components of the force vectors F 1 and F 2 . |F 1 | = ? F1 45 500-N
-
In Exercises 15 through 30, find the derivative dy/dx. In some of these problems, you may need to use implicit differentiation or logarithmic differentiation. y ex + et -2x 1 + e
-
You have been hired as a capital budgeting analyst by a sporting goods firm that manufactures athletic shoes and has captured 10% of the overall shoe market (the total market is worth $100 million a...
-
JLChem Corporation, a chemical manufacturing firm with changing investment opportunities, is considering a major change in dividend policy. It currently has 50 million shares outstanding and pays an...
-
IPOs are difficult to value because firms going public tend to be small, and little information is available about them. Investment bankers have to underprice IPOs because they bear substantial...
-
Paul Simard was delighted when Ancol Ltd. offered him the job of manager at its Jonquiere, Quebec plant. Simard was happy enough managing a small metal stamping plant with another company, but the...
-
In 1979, Larry Merritt and his wife Bobbie bought The Cake Box, a small business located in a tiny 42-square metre store in Tulsa, Oklahoma. The couple were the only employees. "I would make cakes...
-
For Gilles LaCroix, there is nothing quite as beautiful as a handcrafted wood-framed window. LaCroix's passion for windows goes back to his youth in St. Jean, Quebec, where he was taught how to make...
Study smarter with the SolutionInn App