(Ignore Income Taxes in This Problem

question 92

Essay

(Ignore income taxes in this problem. )Jane Summers has just inherited $600,000 from her mother's estate.She is considering investing part of these funds in a small catering business.She would need to purchase a delivery van and various equipment costing $100,000 to equip the business and another $50,000 for inventories and other working capital needs.Rent on the building used by the business will be $24,000 per year.Jane's marketing studies indicate that the annual cash inflow from the business will amount to $90,000.In addition to the building rent,other annual cash outflows for operating costs will amount to $30,000.Jane wants to operate the catering business for only six years.She estimates that the equipment could be sold at that time for about 10% of its original cost.Jane's required rate of return is 16%.
Required:
Compute the net present value of this investment.

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Definitions:

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