Based on expected value analysis

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Reference no: EM131347660

You decide to go into business with your best partner. You will open a express copy service (20 points) You will invest $25,000 in equipment You will pay $1,500 in rent Your hire staff for $2,000 per month You and your partner assign yourself a salary of $4,000 per month each. You will have to quit your current job where you make $6,000 per month Other expenses are estimated at $4,000 Sales are $14,000 per month for the first year and then they go up by 20% each year for 5 years. Your total expenses go up by 5% each year Then you sell the business for $50,000 at the beginning of year 6. You consider that your cost of capital is around 12% What is the present value of your investment? What is the IRR? Are you doing a good deal? If you considered that this is your most likely scenario and has a probability of 50% that it is achieved; that a worst case scenario would have 10% lower sales, 5% higher expenses, and 30% probability of occurring; and that a best case scenario would have 10% higher sales, and 20% probability to occurring; What would be your decision, based on Expected Value Analysis. ,

Reference no: EM131347660

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