(a) Mak Cik Kiah is considering two alternatives for expanding her business; buying a small restaurant and renting a small restaurant. The small restaurant has an initial cost of RM80,000. Daily operating cost is expected to be RM100. The alternative of renting a small restaurant has a rental cost of RM150 per day. At 15% per year worth of money, how many days per year must the restaurant be in use if buying alternative is to be chosen. Take analysis period of 10 years.

(a) Mak Cik Kiah is considering two alternatives for expanding her business; buying a small restaurant and renting a small restaurant. The small restaurant has an initial cost of RM80,000. Daily operating cost is expected to be RM100. The alternative of renting a small restaurant has a rental cost of RM150 per day. At 15% per year worth of money, how many days per year must the restaurant be in use if buying alternative is to be chosen. Take analysis period of 10 years.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Assume you want to start your own small business. You like to open a bakery or nail salon. We assume that the set up cost is the same for both of them and you should invest 1000$. In terms of profit: if you open a bakery for the first year there is 35% chance that you earn 30% and 65% chance that you earn 15%. For the second year, there is 45% chance that you earn 50% and there is 55% chance that you earn 20%. If you open a nail salon, for the first year there is 25% chance that you 60% and 75% chance that you earn 40%. For the second year, there is 80% chance that you earn 30% and 20% chance that you earn 60%. Which business is a better investment that gives you the higher profit for your investment?
Solve the problem with complete solution. 9. You plan to buy a house and lot through home loan from a bank. The selling price is 1,800,000 and the bank requires a down payment of 20% of the selling price. How much is the down payment?
What is the process of consideration of the payback period?
2. You are thinking about starting a restaurant franchise in Irvine, California. You are considering two choices – either a P.F. Chang’s or a Dairy Queen. Unfortunately, you only have an opportunity to build one or the other. The details are the following: P.F. Chang’s: The franchise fee and cost of the building are $1,000,000. After careful calculation, you believe the restaurant will generate $150,000 a year in positive cash flow for the next 20 years at which point the franchise rights expire and the building is worthless (ie. There’s no extra money at the end). Discount rate is 10%. Dairy Queen: The franchise fee and cost of the building are $500,000. After careful calculation, you believe the restaurant will generate $80,000 a year in positive cash flow for the next 20 years at which point the franchise rights expire and the building is worthless (ie. There’s no extra money at the end). Discount rate is 10%. a) What are the two projects’ IRRs and which franchise would you…
1
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f I want to buy a new house and currently have $45 000 and I need to have a 10%down payment plus an additional 5% of the loan amount in closing costs. If the type of house I want costs about$1 000 000 and can earn 9.5% per year, how long will it be before I have enough money for the down paymentand closing costs?
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3. Your favorite neighbor Poindexter learns you are pursuing an MBA and seeks your advice on how to finance his next vehicle. He has gathered information about each option but is not sure how to compare the alternatives. Purchasing a new vehicle will cost $26,500, and he expects to spend about $500 per year in maintenance costs. He would keep the vehicle for five years and estimates that the salvage value will be $10,500. Alternatively, Poindexter could lease the same vehicle for five years at a cost of $5,000 per year, including all maintenance. The lease payments are made at the beginning of each year. Assume a discount rate of 10%. o Provide an analysis for Poindexter at 10%. o Provide the same analysis for good old Poindexter assuming a rate of 5%. At what rate will he be indifferent? o
The buyer of a piece of real estate is often given the option of buying down the loan. This option gives the buyer a choice of loan terms in which various combinations of interest rates and discount points are offered. The choice of how many points and what rate is optimal is often a matter of how long the buyer intends to keep the property. Darrell Frye is planning to buy an office building at a cost of $982,000. He must pay 10% down and has a choice of financing terms. He can select from a 9% 30-year loan and pay 4 discount points, a 9.25% 30-year loan and pay 3 discount points, or a 9.5% 30-year loan and pay 2 discount points. Darrell expects to hold the building for three years and then sell it. Except for the three rate and discount point combinations, all other costs of purchasing and selling are fixed and identical. (Round your answers to the nearest cent. Use this table, if necessary.) (a) What is the amount being financed? 2$ (b) If Darrell chooses the 4-point 9% loan, what…
Your family has a good working vegetable stand and wants to expand into selling from a truck, which is on sale now in your town. The sales price of the truck is 1000.0 kEUR. Fortunately you have savings to finance the expansion, so no loans will be needed. Accounting rules allow you to depreciate the truck over 5 years. You are also aware that you could invest your money elsewhere in other opportunities with a similar risk profile with a yearly return of 10.0%. This means that the required rate of return for the project is 10.0%. Projected sales from the truck for the first year are 400. 0 kEUR, which is expected to remain constant for the foreseeable future. The wholesale value of the goods sold is 80.0 every year. You need to keep inventory of 80.0 in order to ensure smooth operation of the store. Inventory needs to be available at the beginning of each fiscal year. Your customers pay cash, and you also pay cash for the vegetables on the wholesale market. Corporate tax is 20.0%, 1.…

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