Reference no: EM132528685

Terry Simpson is considering investing in screen printing equipment and opening a retail business that specializes in customized T-shirts. The screen-printing equipment will cost $12,000 to purchase and set up. It is expected to have a useful life of six years and will need to be overhauled in year 4 at a cost of about $4,000. At the end of six years, it is expected to be worthless. T-shirts will sell for $19 each and the average cost of buying the T-shirts and printing them is expected to be $12 each. Terry estimates that customers will buy 50 T-shirts per day, 24 days per month for 12 months. Furthermore, monthly operating costs excluding Terry's salary are expected to total $5,000 per month. In order to do the work necessary to make this business succeed, Terry would have to leave a job that pays $36,000 per year.

Question 1: What is the expected annual sales?

Question 2: What is the expected annual net cash inflow from operations including Terry's salary and excluding equipment purchase and overhaul?

Question 3: What is the net present value of the screen-printing equipment if Terry must earn a 15% return on the investment in the equipment?