A retailer is considering opening a new store as a business venture. The purchase price of the store will be $2 million and there will be a further investment required of $0.5 million six months after purchase. The store will open one year after purchase. Revenues less running costs are expected to occur continuously and will be $0.1 million in the first year of operation, $0.15 million in the second year of operation and thereafter increasing at yearly intervals by 2.0% per annum compound. Eight years after purchase, a major refit costing $0.8 million will be required. Twenty-one years after purchase, it is assumed that the store will be closed and sold for $6 million. The retailer requires a rate of return on its investment of 7.0% per annum effective. Which of the following is the accumulated profit the retailer will have made at the end of the term?     $867,113.1     $1,391,845.76     $1,468,794.21     $1,577,605.94     $1,696,537.16     $1,765,078.73     $1,941,735.44     $1,965,730.23     $1,973,357.33     $2,212,835.82

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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  1. A retailer is considering opening a new store as a business venture. The purchase price of the store will be $2 million and there will be a further investment required of $0.5 million six months after purchase.

    The store will open one year after purchase. Revenues less running costs are expected to occur continuously and will be $0.1 million in the first year of operation, $0.15 million in the second year of operation and thereafter increasing at yearly intervals by 2.0% per annum compound.

    Eight years after purchase, a major refit costing $0.8 million will be required. Twenty-one years after purchase, it is assumed that the store will be closed and sold for $6 million.

    The retailer requires a rate of return on its investment of 7.0% per annum effective.

    Which of the following is the accumulated profit the retailer will have made at the end of the term?
       
    $867,113.1
       
    $1,391,845.76
       
    $1,468,794.21
       
    $1,577,605.94
       
    $1,696,537.16
       
    $1,765,078.73
       
    $1,941,735.44
       
    $1,965,730.23
       
    $1,973,357.33
       
    $2,212,835.82
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