Benford Inc. is planning to open a new sporting goods store in a suburban mall. Benford will lease the needed space in the mall. Equipment and fixtures for the store w cost $250,000 and be depreciated to $0 over a 5-year period on a straight-line basis. The new store will require Benford to increase its net working capital by $100,000 time 0. First-year sales are expected to be $0.7 million and to increase at an annual rate of 6 percent over the expected 10-year life of the store. Operating expenses (includin lease payments but excluding depreciation) are projected to be $650,000 during the first year and to increase at a 5 percent annual rate. The salvage value of the stor equipment and fixtures is anticipated to be $11,000 at the end of 10 years. Benford's marginal tax rate is 40 percent. a. Calculate the store's net present value, using an 18 percent required return. Use Table II to answer the question. Round your answer to the nearest dollar. 68997 b. Should Benford accept the project? $ No c. Calculate the store's internal rate of return. Round your answer to one decimal place. 24.1 *% d. Calculate the store's profitability index. Round your answer to two decimal places. 1.28

Benford Inc. is planning to open a new sporting goods store in a suburban mall. Benford will lease the needed space in the mall. Equipment and fixtures for the store w cost $250,000 and be depreciated to $0 over a 5-year period on a straight-line basis. The new store will require Benford to increase its net working capital by $100,000 time 0. First-year sales are expected to be $0.7 million and to increase at an annual rate of 6 percent over the expected 10-year life of the store. Operating expenses (includin lease payments but excluding depreciation) are projected to be $650,000 during the first year and to increase at a 5 percent annual rate. The salvage value of the stor equipment and fixtures is anticipated to be $11,000 at the end of 10 years. Benford's marginal tax rate is 40 percent. a. Calculate the store's net present value, using an 18 percent required return. Use Table II to answer the question. Round your answer to the nearest dollar. 68997 b. Should Benford accept the project? $ No c. Calculate the store's internal rate of return. Round your answer to one decimal place. 24.1 *% d. Calculate the store's profitability index. Round your answer to two decimal places. 1.28

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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Raiders Restaurant is considering the purchase of a $10,000,000 flat-top grill. The grill has an economic life of 6 years and will be fully depreciated using the straight-line method. The grill is expected to produce 600,000 tacos per year for the next 6 years, each taco costing $4 to make and priced at $11. Assume the discount rate is 12% and the tax rate is 21%. The restaurant expects the market value of the grill to be $0, 6 years from now. Calculate the book value of the grill at the end of year 3. (Round to 2 decimals)
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Denger
Raiders Restaurant is considering the purchase of a $10,000,000 flat - top grill. The grill has an economic life of 6 years and will be fully depreciated using the straight-line method. The grill is expected to produce 600,000 tacos per year for the next 6 years, each taco costing $4 to make and priced at $11. Assume the discount rate is 12% and the tax rate is 21 %. The restaurant expects the market value of the grill to be $0, 6 years from now. Calculate the net present value for the project.
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Raiders Restaurant is considering the purchase of a $10,000,000 flat-top grill. The grill has an economic life of 6 years and will be fully depreciated using the straight-line method. The grill is expected to produce 600,000 tacos per year for the next 6 years, each taco costing $4 to make and priced at $11. Assume the discount rate is 12% and the tax rate is 21%. The restaurant expects the market value of the grill to be $0, 6 years from now. Calculate the initial cash outflow for the grill (e.g. the time 0 cash flow). (Enter a negative value and round to 2 decimals)
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