A Video Rental Store Will Cost $650,000 to Open $\pm$ 0% from Their Original Estimates

question 86

Essay

A video rental store will cost $650,000 to open.Assuming annual sales of $1 million,variable costs of 35%,fixed costs of $300,000,depreciation of $100,000,and a tax rate of 35%,calculate the NPV of the project over a 10-year horizon (no inflation or salvage value assumed)with a 12% cost of capital.Conduct a sensitivity analysis by allowing investment,sales,variable costs,and fixed costs to vary by $\pm$ 0% from their original estimates.Which variable appears to affect profitability the most?

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Definitions:

Common Stocks

Equity securities that represent ownership in a corporation, giving the holder voting rights and a share of the company's profits via dividends.

Treasury Bonds

Long-term government securities issued with the purpose of financing government spending and are seen as low-risk investments.

Treasury Bills

Short-term government securities issued at a discount from their face value, with maturities ranging from a few days to 52 weeks.

Volatile

Describes an investment or market that shows frequent and significant price changes over a short period of time.