Batter Than Bacon, a local waffle shop, is considering moving from their current rental location by purchasing a new storefront property in the middle of the suburban shopping mall. Management estimates that the move would increase current yearly pre-tax cash inflows by $55,000 per year. Purchasing the new property would cost $350,000. Management expects to remain at the new site for the next 10 years and uses the straight-line depreciation method. At the end of 10 years, they expect the property will only be worth $40,000 because it will be torn down for redevelopment.
Batter Than Bacon can obtain the necessary funds for the project from several sources. The following list details the percentage of the funds provided and the rates of return required by each capital source.
Bank Loan: 60% of funds, 8% interest rate
New owner investment: 20% of funds, 9% return expected
Bond issuance: 20% of funds, 5% bond interest stipulated
The company pays a marginal tax rate of 25%.
Judging by the Excess Present Value Index, does the proposed relocation at least meet the company's Weighted Average Cost of Capital? Use a financial calculator to compute Present Value of the future cash flows.

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The Answer of Batter Than Bacon, a local waffle shop, is considering moving from their current rental location by purchasing a new storefront property in the middle of the suburban shopping mall. Management estimates that the move would increase current yearly pre-tax cash inflows by $55,000 per year. Purchasing the new property would cost $350,000. Management expects to remain at the new site for the next 10 years and uses the straight-line depreciation method. At the end of 10 years, they expect the property will only be worth $40,000 because it will be torn down for redevelopment.
Batter Than Bacon can obtain the necessary funds for the project from several sources. The following list details the percentage of the funds provided and the rates of return required by each capital source.
Bank Loan: 60% of funds, 8% interest rate
New owner investment: 20% of funds, 9% return expected
Bond issuance: 20% of funds, 5% bond interest stipulated
The company pays a marginal tax rate of 25%.
Judging by the Excess Present Value Index, does the proposed relocation at least meet the company's Weighted Average Cost of Capital? Use a financial calculator to compute Present Value of the future cash flows.

Batter Than Bacon, a Local Waffle Shop, Is Considering Moving