Mark Stevens Is Considering Opening a Hobby and Craft Store

question 81

Essay

Mark Stevens is considering opening a hobby and craft store. He would invest $50,000 to purchase equipment and furnishings and another $100,000 for inventories and other working capital needs. Rent on the building used by the business will be $25,000 per year. In addition to building rent, other annual cash outflows for operating costs will amount to $44,000. Mark estimates that the annual cash inflow from the business will amount to $100,000. Mark plans to operate the business for only six years. He estimates that the equipment and furnishings could be sold at that time for about 10% of its original cost. Mark's discount rate is 16%. All cash flows, except for the initial investment, would occur at the ends of the years.
Required:
Compute the net present value of this investment.

---

Definitions:

LSD

A powerful psychedelic drug known for its significant impact on perception, mood, and thought, popularized in the 1960s.

Haight-Ashbury

A district in San Francisco, California, known as the birthplace of the American counterculture movement of the 1960s, particularly the Summer of Love.

U.S. Military

The armed forces of the United States, responsible for defending the country, its interests, and participating in international peacekeeping efforts.

Free Speech Movement

A student protest which took place during the 1964-1965 academic year on the campus of the University of California, Berkeley, advocating for freedom of speech and academic freedom.