Question 1you own a rental building in the city and are

Reference no: EM13380664

Question 1:

You own a rental building in the city and are interested in replacing the heating system. You are faced with the following alternatives:

a. A solar heating system, which will cost $12,000 to install and $500 a year to run and will last forever (assume that your building does)

b. A gas heating system, which will cost $5,000 to install and $1,000 a year to run and will last 20 years

c. An oil heating system, which will cost $3,500 to install and $1,200 a year to run and will last 15 years. If your discount rate is 10%, which of these three options is best for you?

Question 2:

You are helping a bookstore decide whether it should open a coffee shop on the premises. The details of the investment are as follows:

- The coffee shop will cost $50,000 to open; it will have a 5-year life and be depreciated straight-line over the period to a salvage value of $10,000.

- The sales at the shop are expected to be $15,000 in the first year and grow 5% a year for the following four years.

- The operating expenses will be 50% of revenues.

- The tax rate is 40% and expected return is 12%.

- The coffee shop is expected to generate additional sales of $20,000 next year for the book shop, and the pretax operating margin is 40%. These sales will grow 10% a year for the following four years.

j. Estimate the NPV of the coffee shop without the additional book sales

k. Estimate the present value of the cash flows accruing from the additional book sales

l. Would you open the coffee shop?

Reference no: EM13380664

Questions Cloud

Magellen industries is analyzing a new project the data : magellen industries is analyzing a new project. the data they have gathered to date is as followsinitial requirement

Surgico a manufacturer of consumer plastic products is : surgico a manufacturer of consumer plastic products is evaluating its capital structure. the balance sheet of the

The managers of ponchoparts inc plan to manufacture engine : the managers of ponchoparts inc. plan to manufacture engine blocks for classic cars from the 1960s era. they expect

A three -year project will cost 60000 to construct this : a three -year project will cost 60000 to construct. this will be depreciated straight-line to zero over the three-year

Question 1you own a rental building in the city and are : question 1you own a rental building in the city and are interested in replacing the heating system. you are faced with

A what is the change in the net working capital from 2005 : a. what is the change in the net working capital from 2005 to 2006?b. what is the amount of the noncash expenses for

Questionthe table below shows hypothetical values in : questionthe table below shows hypothetical values in billions of dollars.a. use the table to calculated the m1 and m2

1 explain the role the government plays in personal finance : 1 explain the role the government plays in personal finance focus on regulations laws economic policy etc..2 explain

User Account

All Pages