Using straight-line depreciation toward zero salvage value

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Reference no: EM131960659

Steve's Sub Stop is considering investing in ovens for each of its 120 stores. The ovens will require an initial investment of $15,000 per store plus $500 in installation costs, for a total investment of $1,860, 000. The new capital (including the costs for installation) will be depreciated over five years using straight-line depreciation toward a zero salvage value. Steve's will also incur additional maintenance expenses totaling $120, 000 per year to maintain the ovens. At present, firm revenues for the 120 stores total $9 million, and the company estimates that adding the toaster feature will increase revenues by 10%. If Steve's faces a 30% tax rate, what expected project FCFs for each of the next five years will result from the investment in toaster ovens? If Steve's uses a 9% discount rate to analyze its investments, what is the project's NPV? Should the project be accepted? What is the IRR?

Reference no: EM131960659

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