Reference no: EM132961598

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 $500,000 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 $250,000 at time 0.

• First-year sales are expected to be $1.1 million and to increase at an annual rate of 8 percent over the expected 10-year life of the store. Operating expenses (including lease payments but excluding depreciation) are projected to be $950,000 during the first year and to increase at a 7 percent annual rate. The salvage value of the store's equipment and fixtures is anticipated to be $8,000 at the end of 10 years. Benford's marginal tax rate is 40 percent.

Problem 1: Calculate the store's net present value, using a 16 percent required return. Use Table II to answer the question. Round your answer to the nearest dollar.

Problem 2: Should Benford accept the project?

Problem 3: Calculate the store's internal rate of return. Round your answer to one decimal place.

Problem 4: Calculate the store's profitability index. Round your answer to two decimal places.