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Benford Inc. is planning to open a new sporting goods store in a suburban mall. Benford...

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 will cost $400,000 and be depreciated over a 5-year period on a straight-line basis to $0. The new store will require Benford to increase its net working capital by $375,000 at time 0. First-year sales are expected to be $1.2 million and to increase at an annual rate of 7 percent over the expected 10-year life of the store. Operating expenses (including lease payments and excluding depreciation) are projected to be $800,000 during the first year and increase at a 6 percent annual rate. The salvage value of the store’s equipment and fixtures is anticipated to be $19,000 at the end of 10 years. Benford’s marginal tax rate is 40 percent. Round your answers to the nearest dollar.

  1. Compute the net investment required for Benford.

    $  

  2. Compute the annual net cash flows for the 10-year projected life of the store.

    Year NCF
    1 $  
    2 $  
    3 $  
    4 $  
    5 $  
    6 $  
    7 $  
    8 $  
    9 $  
    10 $  

  3. Compute the annual net cash flows assuming equipment and fixtures are depreciated using the 7-year asset class under MACRS.

    Year NCF
    1 $  
    2 $  
    3 $  
    4 $  
    5 $  
    6 $  
    7 $  
    8 $  
    9 $  
    10 $  

Solutions

Expert Solution

Net investment for Benford is -$775,000

jeff jeffy answered 2 years ago
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