Manny Kurr is considering the purchase of a beauty salon. The initial costof this purchase is $16,000. The after-tax cash flows from this investmentshould be $4,000 per year for the next 5 years. His opportunity cost of capitalis 10 percent. Calculate the following:a. Payback—Should Manny buy the beauty salon based on payback if hisrequired payback is less than 3 years?b. The present value of the benefits (PVB),c. The present value of the costs (PVC),d. The net present value (NPV )—Should Manny buy the beauty salon basedon NPV rules?e. Profitability index (PI )—what does the profitability index mean in terms ofbuying the beauty salon?f. Internal rate of return (IRR), (Hint: Use interpolation)—should Manny buythe beauty salon based on IRR rules?g. Accounting rate of return (ARR)—Should Manny buy the beauty salonbased on the ARR?
Manny Kurr is considering the purchase of a beauty salon. The initial cost
of this purchase is $16,000. The after-tax cash flows from this investment
should be $4,000 per year for the next 5 years. His
is 10 percent. Calculate the following:
a. Payback—Should Manny buy the beauty salon based on payback if his
required payback is less than 3 years?
b. The present value of the benefits (PVB),
c. The present value of the costs (PVC),
d. The
on NPV rules?
e. Profitability index (PI )—what does the profitability index mean in terms of
buying the beauty salon?
f.
the beauty salon based on IRR rules?
g. Accounting rate of return (ARR)—Should Manny buy the beauty salon
based on the ARR?
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