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Question 2 (Total: 30 marks) Grey Mountain Summit Company is considering starting a small catering business...

Question 2 (Total: 30 marks)
Grey Mountain Summit Company is considering starting a small catering business in Whitehorse. The company would need to purchase a delivery van and equipment costing $125,000 to operate the business and another $60,000 for inventories and other working capital needs. Rent for the building to be used by the business will be $35,000 per year. Bree, a Business student at YU and part time employee at Grey Mountain, indicates that the annual cash inflow from the business will amount to $120,000. In addition to the building rent, annual cash outflow for operating costs will amount to $40,000. Bree wants to operate the catering business for only six years. She estimates that the equipment could be sold at that time for 4% of its original cost. Bree uses a 16% discount rate. (Ignore income taxes in this problem.)
Required:
Would you advise Bree to make this investment? Use Net Present Value and Profitability analysis to support your decision.

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ekkarill92 answered 2 years ago
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