you own and operate a profitable indoor sports facility and are considering renovating an unused part of
Question:
you own and operate a profitable indoor sports facility and are considering renovating an unused part of the facility to sell athletic clothing. You expect that the shop would generate sales of $100,000 a year for three years. The costs of labor and the athletic clothing would be $40,000 and $42,000 per year respectively.
Renovating the space would require you to purchase shelving for the clothing. That would cost $10,000 (fully- depreciable straight-line over five years). You expect that you would be able to sell the shelving at the end of three years for $2,500.
If you don't use the space to sell athletic clothing you could rent it out to a local Taco shop that wants to open a location within your facility. They have offered to pay $12,000/year in rent.
If your tax rate is 30%, what is the IRR of this investment?