Reference no: EM132462815

Problem - Emmas Beauty Supply is considering expanding the existing store. Erma wants to lease the office space next door to her business. Erma must spend, $120,000 on equipment to expand. The equipment is expected to have a zero-salvage value and will be retired in 8 years. Erma expects to increase networking capital by $10,000 right now if she goes through with the expansion. Erma spent $12,000 last month on a survey of the area surrounding the shop to see if there was sufficient demand for a larger store. Erma estimates she will increase revenues by $100,000 per year in the new store for eight years. The direct expenses incurred to make those sales are $65,000, including rent. The lease she is considering signing is for 8 years. She will liquidate the $10,000 networking capital when the lease is complete in 8 years. Erma's Beauty Supply pays 40.0% in taxes, and has a cost of capital of 10.0%. What is Erma's NPV if she decides to expand the business?

1) $12,158.43

2) $15,492.37

3) $18,708.08

4) $21,686.99

5) $24,359.04