Question
You spend $5,000 today for a kitchen full of flour and frosting (inventory). Years 1-3 will grow this by $1,000 each year (so inventory will
You spend $5,000 today for a kitchen full of flour and frosting (inventory). Years 1-3 will grow this by $1,000 each year (so inventory will be $6,000 at the end of year 1, for example).
You will shut down in 4 years. You will use up inventory during year 4 so that the day you close, you will have no flour or frosting left. In other words, inventory at the end of year 4 is zero.
Sales are $150,000/year. Labor, materials, rent, and marketing costs are $130,000/year. Sales and costs arrive at year-end.
You spend $30,000 today on furniture and cooking equipment, depreciated evenly and fully over 4 years.
At shutdown, you can sell your furniture/equipment for $3,000.
The tax rate is 20% and the required return is 15%.
What is the NPV of this store?
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Foundations of Finance The Logic and Practice of Financial Management
Authors: Arthur J. Keown, John D. Martin, J. William Petty
8th edition
132994879, 978-0132994873
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