Reference no: EM132556586

Question - James Denning wants to buy a caravan rental business in the inner Melbourne suburb of Richmond. James spends $1,730,000 on the purchase of the business including caravans and further advertising and signage costs amount to $350,000. He thinks he can net $570,000 each year after all costs are paid. He will work in the business and not take a salary. After 4 years of this venture, he aims to sell the business and the caravans. To be conservative, he allows only $430,000 as the amount recouped. Please answers the questions below. Where a number is required in the boxes below, please type in the number without a thousand separator.

a. What is the PP for the caravan venture?

b. If James allows $140,000 as his own wage in his calculations and he could earn 5 per cent elsewhere on his funds, what is the NPV for the project? Please note that based on the discount rate of 5 per cent, the present value of an annuity of $1 per year for 4 years is $3.546, while the present value of $1 in 4 years is $0.8227.