(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:

National Authority

The centralized power exercised by a sovereign state over its territory and population, often manifesting through the enactment and enforcement of laws.

Separating Church and State

The principle aiming to ensure religious freedom by preventing government involvement in religious affairs and vice versa.

James Madison

The fourth President of the United States (1809-1817) known as the "Father of the Constitution" for his pivotal role in drafting and promoting the U.S. Constitution and the Bill of Rights.

Articles of Confederation

The first written constitution of the United States, in force between 1781 and 1789, which outlined a confederal government giving significant power to states.