Bradley Company's Required Rate of Return Is 14

question 47

Essay

Bradley Company's required rate of return is 14%. The company has an opportunity to be the exclusive distributor of a very popular consumer item. No new equipment would be needed, but the company would have to use one-fourth of the space in a warehouse it owns. The warehouse cost $200,000 new. The warehouse is currently half-empty, and there are no other plans to use the empty space. In addition, the company would have to invest $100,000 in working capital to carry inventories and accounts receivable for the new product line. The company would have the distributorship for only five years. The distributorship would generate a $17,000 net annual cash inflow. (Ignore income taxes in this problem.)

Required:

What is the net present value of the project at a discount rate of 14%? Should the project be accepted?

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Definitions:

Gallbladder

A small, pear-shaped organ located beneath the liver, storing and concentrating bile produced by the liver before it is released into the small intestine.

Medial Lobe

A segment of an organ or gland separated from the rest by boundaries but specifically, it often refers to parts of the brain or lungs, though not a universally used term without specifying the organ.

Liver

A vital organ that performs a wide range of functions, including detoxification, protein synthesis, and the production of biochemicals necessary for digestion.

Lingual Frenulum

A small fold of mucous membrane extending from the floor of the mouth to the midline of the underside of the tongue.