Mark Stevens Is Considering Opening a Hobby and Craft Store.he
Mark Stevens is considering opening a hobby and craft store.He would need $100,000 to equip the business and another $40,000 for inventories and other working capital needs.Rent on the building used by the business will be $24,000 per year.Mark estimates that the annual cash inflow from the business will amount to $90,000.In addition to building rent,annual cash outflow for operating costs will amount to $30,000.Mark plans to operate the business for only six years.He estimates that the equipment and furnishings could be sold at that time for 10% of their original cost.The working capital will be fully released for other purposes at the end of the six years.Mark uses a discount rate of 16%.
Would you advise Mark to make this investment? Use the net present value method.
Vernon Company has been offered a 7-year contract to supply a part for the military.After careful study,the company has developed the following estimated data relating to the contract:
Ferris Company has an old machine that is fully depreciated but has a current salvage value of $5,000.The company wants to purchase a new machine that would cost $60,000 and have a 5-year useful life and zero salvage value.Expected changes in annual revenues and expenses if the new machine is purchased are:
Trimaine and Marjorie Manufacturing is considering the replacement of some old machinery with new machinery due to technology advancement that should save them $16,000 in net cash operating costs.The estimated life of the new equipment is 8 years and it will cost $50,000.What is the payback period?