The Hangover Diner is considering a project to build a new diner next to SaintJoseph's University with an initial cost of $555,000. Construction will take 2 years.The diner will open in year 3, so no cash will be received in the first 2 years. At theend of the third year, the diner expected to produce a cash inflow of $100,000.Starting in the fourth year the cash flows are expected to grow by 2.50% per yearforever. What is the project's net present value today at a 15% discount rate?O -$22,711$44,274O $49,915$58,552

The net present value (NPV), a capital budgeting approach, is often used to assess investments and…

The Hangover Diner is considering a project to build a new diner next to Saint Joseph's University with an initial cost of $555,000. Construction will take 2 year The diner will open in year 3, so no cash will be received in the first 2 years. At th end of the third year, the diner expected to produce a cash inflow of $100,000. Starting in the fourth year the cash flows are expected to grow by 2.50% per yea forever. What is the project's net present value today at a 15% discount rate?

The Hangover Diner is considering a project to build a new diner next to Saint Joseph's University with an initial cost of $555,000. Construction will take 2 year The diner will open in year 3, so no cash will be received in the first 2 years. At th end of the third year, the diner expected to produce a cash inflow of $100,000. Starting in the fourth year the cash flows are expected to grow by 2.50% per yea forever. What is the project's net present value today at a 15% discount rate?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 5EB: A grocery store is considering the purchase of a new refrigeration unit with an Initial Investment...

See similar textbooks

Similar questions

Your company is planning to purchase a new log splitter for is lawn and garden business. The new splitter has an initial investment of $180,000. It is expected to generate $25,000 of annual cash flows, provide incremental cash revenues of $150,000, and incur incremental cash expenses of $100,000 annually. What is the payback period and accounting rate of return (ARR)?
A grocery store is considering the purchase of a new refrigeration unit with an Initial Investment of $412,000, and the store expects a return of $100,000 in year one, $72000 in years two and three, $65,000 in years four and five, and $38,000 in year six and beyond, what is the payback period?
Manzer Enterprises is considering two independent investments: A new automated materials handling system that costs 900,000 and will produce net cash inflows of 300,000 at the end of each year for the next four years. A computer-aided manufacturing system that costs 775,000 and will produce labor savings of 400,000 and 500,000 at the end of the first year and second year, respectively. Manzer has a cost of capital of 8 percent. Required: 1. Calculate the IRR for the first investment and determine if it is acceptable or not. 2. Calculate the IRR of the second investment and comment on its acceptability. Use 12 percent as the first guess. 3. What if the cash flows for the first investment are 250,000 instead of 300,000?
If a copy center is considering the purchase of a new copy machine with an initial investment cost of $150,000 and the center expects an annual net cash flow of $20,000 per year, what is the payback period?
The Hangover Diner is considering a project to build a new diner next to Saint Joseph's University with an initial cost of $350,000. Construction will take 3 years. The diner will open in year 4, so no cash will be received in the first 3 years. At the end of the fourth year, the diner expected to produce a cash inflow of $100,000. Starting in the fifth year the cash flows are expected to grow by 2% per year forever. What is the project's net present value today at a 16% discount rate? a) -$4,818 b) $44,494 c) $50,411 d) $107,613
Peach Co. spends $250,000 for a new catnip sorting machine. Peach Co. expects net cash inflows of $20,000 in the first year, $50,000 in the second year, and $25,000 over the following 10 years. What is the payback period? Round your answer to 2 d.p.
Kuji Sushi Ltd. has a new project idea to launch a mini restaurant at the university. The company paid for an incremental earnings forecast study to run this restaurant for the next three years and the cost the company $40,000. The EBIT of this project is $350,000 next year and remains constant for the following two years. The interest expense for the debt that Kuji has to take on is $1,500 per year and the tax rate is 30%. The mini building would cost them $400,000 today and would be sold at the end of the three years for $0 and have no tax consequences. CCA deductions for the next three years will be $80,000, $128,000 and $76,800 for this project. Net working capital increases $10,000 at the end of year one for capital available during the project and is then recovered in year 3. The interest rate is 8%. Solve for the Free Cash Flow in each year.
I need a detailed explanation on to solve this problem: You plan to open a grooming center. The grooming equipment will cost $405,000, to be paid immediately. You expect aftertax cash inflows of $88,000 annually for six years, after which you plan to scrap the equipment and retire to the beaches of Nevis. The first cash inflows occurs at the end of the first year. Assumed the required return is 13%. What is the project's Profitability Index (PI)?
Wildcat Pizza, Inc. would like to open a new restaurant in Boston. The initial investment to purchase the building is $420,000, and an additional $50,000 in working capital is required. Since this store will be operating for many years, the working capital will not be returned in the near future. Wildcat expects to remodel the store at the end of 3 years at a cost of $100,000. Annual net cash receipts from daily operations (cash receipts minus cash payments) are expected to be as follows: Year 1 $80,000 Year 2 $115,000 Year 3 $118,000 Year 4 $140,000 Year 5 $155,000 Year 6 $167,000 Year 7 $175,000 The company’s required rate of return is 13 percent. Assume management decided to limit the analysis to 7 years. Find the net present value of this investment. Use trial and error to approximate the internal rate of return for this investment proposal. Based on your answer to requirements a and b, should Wildcat Pizza, open the new store? Explain. Calculate the payback…
Wildcat Pizza, Inc. would like to open a new restaurant in Boston. The initial investment to purchase the building is $420,000, and an additional $50,000 in working capital is required. Since this store will be operating for many years, the working capital will not be returned in the near future. Wildcat expects to remodel the store at the end of 3 years at a cost of $100,000. Annual net cash receipts from daily operations (cash receipts minus cash payments) are expected to be as follows: Year 1 $80,000 Year 2 $115,000 Year 3 $118,000 Year 4 $140,000 Year 5 $155,000 Year 6 $167,000 Year 7 $175,000 The company’s required rate of return is 13 percent. Assume management decided to limit the analysis to 7 years. Find the net present value of this investment. = 81, 067 Use trial and error to approximate the internal rate of return for this investment proposal. Calculate the payback period (include working capital in the initial investment).…
Wildcat Pizza, Inc. would like to open a new restaurant in Boston. The initial investment to purchase the building is $420,000, and an additional $50,000 in working capital is required. Since this store will be operating for many years, the working capital will not be returned in the near future. Wildcat expects to remodel the store at the end of 3 years at a cost of $100,000. Annual net cash receipts from daily operations (cash receipts minus cash payments) are expected to be as follows: Year 1 $80,000 Year 2 $115,000 Year 3 $118,000 Year 4 $140,000 Year 5 $155,000 Year 6 $167,000 Year 7 $175,000 The company’s required rate of return is 13 percent. Assume management decided to limit the analysis to 7 years. Calculate the payback period (include working capital in the initial investment). Assuming management requires all investments to be recovered within three years, should Wildcat Pizza open the new store? What is the weakness of using the payback period method to…
Jim Bingham is considering starting a small catering business. He would need to purchase a delivery van and various equipment costing $150,000 to equip the business and another $60,000 for inventories and other working capital needs. Rent for the building used by the business will be $30,000 per year. Jim's marketing studies indicate that the annual cash inflow from the business will amount to $125,000. In addition to the building rent, annual cash outflow for operating costs will amount to $50,000. Jim wants to operate the catering business for only five years. He estimates that the equipment could be sold at that time for 10% of its original cost. The working capital will be fully released for other purposes at the end of the six years. Jim uses a 14% discount rate. needed; Would you advise Jim to make this investment?