(Ignore income taxes in this problem. )Bill Anders retires in 8 years.He has $650,000 to invest and is considering a franchise for a fast-food outlet.He would have to purchase equipment costing $500,000 to equip the outlet and invest an additional $150,000 for inventories and other working capital needs.Other outlets in the fast-food chain have an annual net cash inflow of about $160,000.Mr.Anders would close the outlet in 8 years.He estimates that the equipment could be sold at that time for about 10% of its original cost.Mr.Anders' required rate of return is 16%.
Required:
What is the investment's net present value when the discount rate is 16 percent? Is this an acceptable investment?

Question

(Ignore income taxes in this problem. )Bill Anders retires in 8  years.He has $650,000 to invest and is considering a franchise for a fast-food outlet.He would have to purchase equipment costing $500,000 to equip the outlet and invest an additional $150,000 for inventories and other working capital needs.Other outlets in the fast-food chain have an annual net cash inflow of about $160,000.Mr.Anders would close the outlet in 8 years.He estimates that the equipment could be sold at that time for about 10% of its original cost.Mr.Anders' required rate of return is 16%.
Required:
What is the investment's net present value when the discount rate is 16 percent? Is this an acceptable investment?

Quizplus · Accepted Answer

The Answer of (Ignore income taxes in this problem. )Bill Anders retires in 8  years.He has $650,000 to invest and is considering a franchise for a fast-food outlet.He would have to purchase equipment costing $500,000 to equip the outlet and invest an additional $150,000 for inventories and other working capital needs.Other outlets in the fast-food chain have an annual net cash inflow of about $160,000.Mr.Anders would close the outlet in 8 years.He estimates that the equipment could be sold at that time for about 10% of its original cost.Mr.Anders' required rate of return is 16%.
Required:
What is the investment's net present value when the discount rate is 16 percent? Is this an acceptable investment?

(Ignore Income Taxes in This Problem