Janelle Bates Has Just Inherited $250,000 from Her Uncle's Estate

question 113

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Janelle Bates has just inherited $250,000 from her uncle's estate. She is considering opening a small sewing and fabric shop. She would need to purchase inventory costing $50,000. Janelle plans to rent a shop in a local shopping center for $12,000 per year. Fixtures, display equipment, and furniture will cost $18,000 and will be depreciated $3,000 per year for 5 years to its expected salvage value of $3,000. Operating costs will amount to $25,000 per year. Janelle estimates her revenues from sales and sewing services will total $65,000. Because Janelle believes she can earn a 10% return by investing in mutual funds, she does not want to start the business unless she can earn at least this rate. Ignore income taxes.(PV of $1and PVA of $1) (Use appropriate factor(s) from the tables provided.)Required:Prepare a schedule of expected cash flows for the proposed investment by completing the table provided below. In Column 1 enter a brief description of the cash flow. In Column 2 indicate whether the cash flow is an inflow (I) or an outflow (O). In Column 3 enter the years in which the cash flow will occur. For example, if the cash flow occurs immediately enter a 0. If the cash flow occurs each year, enter 1 to 5, etc. In Column 4 enter the cash flow amount.

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