P12-2B

# 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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