9780321818171_berk_ch03

You will be graduating next year and have started to

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Unformatted text preview: to choose among projects. Suppose you own a coffee stand across from the campus and you hire someone to operate it for you. You will be graduating next year and have started to consider selling it. An investor has offered to buy the business from you for $20,000 whenever you are ready. Your interest rate is 10% and you are considering three alternatives: 1. Sell the business now. 2. Operate normally for one more year and then sell the business (requiring you to spend $5000 on supplies and labour now, but earn $10,000 at the end of the year). 3. Be open only in the mornings for one more year and then sell the business (requiring you to spend $3000 on supplies and labour now, but earn $6000 at the end of the year). The cash flows and NPVs are given in Table 3.1. T ABLE 3 .1 Cash Flows and NPVs for Coffee Stand Alternatives Now Sell $20,000 One Year NPV 0 $20,000 Operate Normally $5000 $10,000 $20,000 2$5000 1 $30,000 5 $22,273 1.10 Mornings Only $3000 $6000 $20,000 2$3000 1 $26,000 5 $20,636 1.10 Among these three...
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This note was uploaded on 02/07/2014 for the course MIS 304 taught by Professor Mejias during the Spring '07 term at University of Arizona- Tucson.

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