What is the net present value (NPV) and internal rate of...

What is the net present value (NPV) and internal rate of return(IRR) for the project .

To open a flagship arcade in Capital City plus another arcade in Regional City, will require a capital investment (year 0) of $25,000,000 and a working capital allocation (year 0) of $15,000,000. This buys you the fit-out for the locations, the arcade machines and so forth. The project has a life of 10 years. The working capital is returned at the end of the project.

• You have undertaken a marketing survey at a cost of $1,150,000. In the second year of the project (year 2), you will take a smaller follow-up survey to check customer satisfaction. This second survey will cost $200,000.

• Every three years, the arcade machines need to be refreshed. These refreshes in year 3, year 6 and year 9 will cost $2,000,000 each time.

• Number of customer visits in the first year (year 1) (flagship): 150,000

• Number of customer visits in the first year (year 1) (regional): 60,000

• Customer visits are expected to grow by 1 percent p.a. (flagship) and 0.50 percent p.a. (regional).

• Customer spending per visit on playing the machines in the first year (flagship): $45

• Customer spending per visit on playing the machines in the first year (regional): $30

• Customer spending per visit on playing the machines is expected to grow by 2.50 percent p.a. (both locations)

Customer spending per visit on snacks in the first year (all stores): $15

• Customer spending per visit on snacks (all stores) is expected to grow by 3 percent p.a.

• The flagship store will sell retro themed merchandise (e.g. Atari t-shirts) in its gift shop. Sales of this merchandise are expected to be $100,000 in the first year and grow at 10 percent p.a.

• Cost of goods sold (merchandise) is $60,000 in the first year and will grow at the same rate as merchandise sales.

• Wages for the twenty permanent staff plus casuals are expected to be $1,500,000 in the first year, growing at 1.50 percent p.a.

• Repairs and other variable costs are expected to be $1,250,000 in the first year, growing at 5 percent p.a.

• Fixed costs (total for both locations) are $800,000 in the first year, growing at 2 percent p.a.

• Depreciation is straight-line to zero.

• Taxes are 27.50 percent.

• The discount rate is 12 percent.