(Ignore Income Taxes in This Problem

question 178

Essay

(Ignore income taxes in this problem.)Jim Bingham is considering starting a small catering business.He would invest $125,000 to purchase a delivery van and various equipment and another $60,000 for inventories and other working capital needs.Rent for the building used by the business will be $35,000 per year.In addition to the building rent,annual cash outflow for operating costs will amount to $40,000.The annual cash inflow from the business will amount to $120,000.Jim wants to operate the catering business for only six years.He estimates that the equipment could be sold at that time for 4% of its original cost.Jim uses a 16% discount rate.All cash flows,except for the initial investment,would occur at the ends of the years.The investment in working capital would be returned at the end of the six years.
Required:
Compute the net present value of this investment.

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Definitions:

Trauma

A deeply distressing or disturbing experience, often resulting in lasting psychological impact.

Mental

Relating to the mind, cognitive processes, or psychological state of an individual.

Emotional State

The internal condition of an individual that involves feelings, moods, and temperaments, influencing perception and behavior.

Compensatory Manner

A way of adjusting behavior or thoughts to make up for losses or deficiencies in other areas.