(Ignore income taxes in this problem.)Bill Anders is considering investing in a franchise in a fast-food chain.He would have to purchase equipment costing $420,000 to equip the outlet and invest an additional $30,000 for inventories and other working capital needs.Other outlets in the fast-food chain have an annual net cash inflow of about $120,000.Mr.Anders would close the outlet in 5 years.He estimates that the equipment could be sold at that time for about 10% of its original cost and the working capital would be released for use elsewhere.Mr.Anders' required rate of return is 8%.
Required:
What is the investment's net present value? Is this an acceptable investment?

Question

Quizplus · Accepted Answer

The Answer of (Ignore income taxes in this problem.)Bill Anders is considering investing in a franchise in a fast-food chain.He would have to purchase equipment costing $420,000 to equip the outlet and invest an additional $30,000 for inventories and other working capital needs.Other outlets in the fast-food chain have an annual net cash inflow of about $120,000.Mr.Anders would close the outlet in 5 years.He estimates that the equipment could be sold at that time for about 10% of its original cost and the working capital would be released for use elsewhere.Mr.Anders' required rate of return is 8%.
Required:
What is the investment's net present value? Is this an acceptable investment?

(Ignore Income Taxes in This Problem