Nm. 147. An entrepreneur is considering opening a a big store that has a bakery, brewery, and grocery store inside it that's located right off a popular biking trail. The start-up cost to open this big store is expected to be $350,000. The new restaurant is expected to lose $100,00 the first 2 years before becoming profitable in year threewith a positive $75,000 cash flow. After becoming profitable, the cash flows are expected to grow at 20% per year for 5 years. Solve for only IRR and paybackperiod; (This problem does not provide a required return to solve NPV, MIRR, and discounted pay back.) What does its IRR and payback period suggest? Shouldthey accept or reject this project proposal?

Capital budgeting refers to the financial technique used for evaluating the viability of the project…

Answered: An entrepreneur is considering opening…

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

Section: Chapter Questions

Problem 1PS

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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 years. The diner will open in year 3, so no cash will be received in the first 2 years. At the 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 year forever. What is the project's net present value today at a 15% discount rate? O -$22,711 $44,274 O $49,915 $58,552
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