Reference no: EM132911134

After Carole Baskin's current husband disappears, she decides she will marry a man with the last name Robbins. She'll then start an ice cream store named "Baskin Robbins." Given ice cream is of course cold, each TV commercial will appropriately start with her phrase "Hey all you cool cats and kittens." Her signature flavor will be "Don Lewis" - it will (supposedly) be strawberry ice cream with some little pieces of white chocolate. To start the store today, she will need to invest $3,000,000 in the building. She will also need to invest $250,000 in ice cream inventory. She thinks she will run the store for 6 years. Each year she believes she can sell 150,000 servings of ice cream at $12 each. The cost of the ice cream is $4 per serving. She'll have fixed costs per year of $100,000.

Problem 1: If Carole's tax rate is 20%, she uses straight-line depreciation to zero any fixed investments, she fully recovers her working capital, and her discount rate is 10%, what is the IRR and should she start the store?