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A store will cost $925,000 to open. Variable costs will be 40% of sales and fixed...

A store will cost $925,000 to open. Variable costs will be 40% of sales and fixed costs are $190,000 per year. The investment costs will be depreciated straight-line over the 17 year life of the store to a salvage value of zero. The opportunity cost of capital is 10% and the tax rate is 30%. The operating cash flow is $219,323.53 when sales revenue is $800,000 per year.

Calculate the Net Present Value. Should the store be opened or not?

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Answer #1

17 10% I = Amuont 219,323.53 Factor 8.0216 $ Present value 1,759,315.40 $ Operating cash flows Less: Initial investment $ 925

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