24. Darron Mack owns the Gas n' Go convenience store and gas station. After hearing a marketing lecture, he realizes that it might be possible to draw more customers to his high-margin convenience store by selling his gasoline at a lower price. However, the Gas n' Go is unable to qualify for volume discounts on its gasoline purchases, and therefore cannot sell gasoline for profit if the price is lowered. Each new pump will cost $95,000 to install, but will increase customer traffic in the store by 1,000 customers per year. Also, because the Gas n' Go would be selling its gasoline at no profit, Darren plans on increasing the profit margin on convenience store items incrementally over the next 5 years. Assume a discount rate of 8 percent. The projected convenience store sales per customer and the projected profit margin for the next 5 years are as follows: Projected Convenience Store Sales Per Customer Projected Profit Margin Year 1 $5.00 20% 2 $6.50 25% 3 $8.00 30% 4 $10.00 35% $11.00 40% a. What is the NPV of the next 5 years of cash flows if Darren had four new pumps installed? b. If Darren required a payback period of 4 years, should he go ahead with the installation of the new pumps?
24. Darron Mack owns the Gas n' Go convenience store and gas station. After hearing a marketing lecture, he realizes that it might be possible to draw more customers to his high-margin convenience store by selling his gasoline at a lower price. However, the Gas n' Go is unable to qualify for volume discounts on its gasoline purchases, and therefore cannot sell gasoline for profit if the price is lowered. Each new pump will cost $95,000 to install, but will increase customer traffic in the store by 1,000 customers per year. Also, because the Gas n' Go would be selling its gasoline at no profit, Darren plans on increasing the profit margin on convenience store items incrementally over the next 5 years. Assume a discount rate of 8 percent. The projected convenience store sales per customer and the projected profit margin for the next 5 years are as follows: Projected Convenience Store Sales Per Customer Projected Profit Margin Year 1 $5.00 20% 2 $6.50 25% 3 $8.00 30% 4 $10.00 35% $11.00 40% a. What is the NPV of the next 5 years of cash flows if Darren had four new pumps installed? b. If Darren required a payback period of 4 years, should he go ahead with the installation of the new pumps?
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
Related questions
Question
Change information to 95,000 to install, but will increase customer traffic in the store by 12,000 customers per year. Assume a discount rate of 7%
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
Recommended textbooks for you
Practical Management Science
Operations Management
ISBN:
9781337406659
Author:
WINSTON, Wayne L.
Publisher:
Cengage,
Operations Management
Operations Management
ISBN:
9781259667473
Author:
William J Stevenson
Publisher:
McGraw-Hill Education
Operations and Supply Chain Management (Mcgraw-hi…
Operations Management
ISBN:
9781259666100
Author:
F. Robert Jacobs, Richard B Chase
Publisher:
McGraw-Hill Education
Practical Management Science
Operations Management
ISBN:
9781337406659
Author:
WINSTON, Wayne L.
Publisher:
Cengage,
Operations Management
Operations Management
ISBN:
9781259667473
Author:
William J Stevenson
Publisher:
McGraw-Hill Education
Operations and Supply Chain Management (Mcgraw-hi…
Operations Management
ISBN:
9781259666100
Author:
F. Robert Jacobs, Richard B Chase
Publisher:
McGraw-Hill Education
Purchasing and Supply Chain Management
Operations Management
ISBN:
9781285869681
Author:
Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson
Publisher:
Cengage Learning
Production and Operations Analysis, Seventh Editi…
Operations Management
ISBN:
9781478623069
Author:
Steven Nahmias, Tava Lennon Olsen
Publisher:
Waveland Press, Inc.