(Ignore Income Taxes in This Problem

question 51

Essay

(Ignore income taxes in this problem. )Bill Anders retires in 8 years.He has $650,000 to invest and is considering a franchise for a fast-food outlet.He would have to purchase equipment costing $500,000 to equip the outlet and invest an additional $150,000 for inventories and other working capital needs.Other outlets in the fast-food chain have an annual net cash inflow of about $160,000.Mr.Anders would close the outlet in 8 years.He estimates that the equipment could be sold at that time for about 10% of its original cost.Mr.Anders' required rate of return is 16%.
Required:
What is the investment's net present value when the discount rate is 16 percent? Is this an acceptable investment?

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Definitions:

Cognitive Ability

The capacity of an individual to perform the various mental activities most closely associated with learning and problem solving.

Volume or Mass

The volume refers to the amount of space an object occupies, while mass is a measure of an object's quantity of matter.

Piagetian Thought

A theory of cognitive development proposed by Jean Piaget, detailing how children construct a mental model of the world through stages.

Egocentrism

A cognitive trait where an individual is unable to distinguish between their own perspective and that of others.