Question

8. You decide to buy an ice cream cart to sell frozen desserts on Friday afternoons outside the Questrom building. The desserts will cost you $3.00 each and you plan to sell them for $5.00 each. The cart will cost you $10,000 and you expect to sell 300 desserts every Friday afternoon for the next year. Assuming that you buy the $10,000 cart today and that you operate the cart for 1 year (52 weeks), what is the NPV of your investment at a discount rate of 4% APR?

Answer 1

Sale Price per dessert = $5.00

Cost Price per dessert = $3.00

Profit per dessert = $5.00 - $3.00 = $2.00

Therefore, Cash flow per week = 300 x $2.00 = $600.00

Today's cash outflow is $10,000 (Cost of Ice-cream Cart)

Net present Value = Present Value of cash inflows - Cash outflow

Now we need to find Present Value of Cash inflows.

Where PVC = Present Value of cash inflows,

C = Cash flow

i = discount rate

a = number of weeks per year

n = number of years

Now let us put the values in the formula,

= 600 (50.95452)

=$30,572.71

Therefore,

NPV = $30,572.71 - $10,000

= $20.572.71

Answer concludes here, but following is just for reference or verification:

Here,