P12-2B - 12-2B a.) [1] Annual Net Income $71,500 * Sales...

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Unformatted text preview: 12-2B a.) [1] Annual Net Income $71,500 * Sales Expenses depreciation (cribs, high chairs) staffing salaries food, diapers, etc. Total expenses Net income Cash flow [2] Annual Cash Inflow $71,500 $4,000 ** $60,000 $6,000 $70,000 $1,500 $$60,000 $6,000 $66,000 $5,500 * 11 infants X $125 per week X 52 weeks = $71,500 ** ($20,000-$0)/5 = $4000 b.) [1] Cash payback period = Cost of Capital Investment / Net Annual Cashflows =$20,000/($1,500 + $4,000) = 3.64 years [2] Annual rate of return =Expected Annual NI/Avg. Investment =$1,500/($10,000*) =0.15 or 15.0% ***($20,000 + $0)/ 2 Present Present Present Present value value value value of of of of annual annual annual annual cash cash cash cash inflows inflows inflows inflows ($5,500 ($5,500 ($5,500 ($5,500 X X X X 3.79079****) 3.79079****) 3.79079****) 3.79079****) c.) Capital Investment NPV ****PVA = [1-(1/(1+r)^n)]/r =[1-(1/1.10)^5]/.10 = 3.79079 d.) The computations show that the newborn nursery would be a wise investment for these reasons: 1.) annual net income will be $1,500 2.) the annual rate of return (15%) is greater than the cost of capital (10%) 3.)the csash payback period is only 72.8% (3.64/5) of the usefull life 4.) NPV is positve $20,849.30 $20,000 $849.30 ...
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This note was uploaded on 04/02/2008 for the course BUSI 101 taught by Professor Skender during the Spring '08 term at UNC.

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