(Ignore Income Taxes in This Problem

question 82

Essay

(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?

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Definitions:

Manufacturer's Suggested

The retail price recommended by the producer of a product, often seen in the context of MSRP (Manufacturer's Suggested Retail Price).

Autobytel.com

A web-based car buying service that connects consumers with dealerships, offering quotes, research tools, and financing options.

Option Packages

Bundles of additional features or services that can be added to a product or service, often at a discounted price compared to purchasing each item separately.

Informed Shoppers

Consumers who research and possess a good understanding of the products or services they intend to purchase.