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You are thinking of opening an internet coffee shop and estimate the following cash flows. The...

You are thinking of opening an internet coffee shop and estimate the following cash flows. The cost of the establishment is $1.200,000 for the building and $250,000 for equipment (tax life of 5 years) and both are placed it into service on June 1. The business will earn $42,300 per week in revenue and have cash expenses of $18,000 per week during its twelve years of operation. Assume a 50-week year. The building will be depreciated at $31,000 per year and the equipment will be depreciated at $20,000 per year. The business will be sold for an after-tax cash disposition value of $600,000 at the end of the 12th year. No other cash flows will occur during the 12 years of operation. Using a 25 percent tax rate, and a 9 percent cost of money, what is the net present value of this business? Present value of future operating profits______________________

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Dear Reader

The question is testing the concept of the NPV. It involves complex calculation and one important point of tax life of equipment.

Please read accordingly.

Hope you will understand solution.

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jeff jeffy answered 2 years ago
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