A retailer is considering opening a new store as a business venture. The purchase price of the store will be $2 million and there will be a further investment required of $0.5 million six months after purchase. The store will open one year after purchase. Revenues less running costs are expected to occur continuously and will be $0.3 million in the first year of operation, $0.35 million in the second year of operation and thereafter increasing at yearly intervals by 2.0% per annum compound. Eight years after purchase, a major refit costing $0.8 million will be required. Twenty-five years after purchase, it is assumed that the store will be closed and sold for $2 million. The retailer requires a rate of return on its investment of 5.0% per annum effective. Which of the following is the discounted payback period for this investment? 10.87 years 11.23 years 11.32 years 11.63 years 11.72 years 11.83 years 12.09 years 12.19 years 12.3 years 12.73 years
A retailer is considering opening a new store as a business venture. The purchase price of the store will be $2 million and there will be a further investment required of $0.5 million six months after purchase. The store will open one year after purchase. Revenues less running costs are expected to occur continuously and will be $0.3 million in the first year of operation, $0.35 million in the second year of operation and thereafter increasing at yearly intervals by 2.0% per annum compound. Eight years after purchase, a major refit costing $0.8 million will be required. Twenty-five years after purchase, it is assumed that the store will be closed and sold for $2 million. The retailer requires a rate of return on its investment of 5.0% per annum effective. Which of the following is the discounted payback period for this investment? 10.87 years 11.23 years 11.32 years 11.63 years 11.72 years 11.83 years 12.09 years 12.19 years 12.3 years 12.73 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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A retailer is considering opening a new store as a business venture. The purchase price of the store will be $2 million and there will be a further investment required of $0.5 million six months after purchase.
The store will open one year after purchase. Revenues less running costs are expected to occur continuously and will be $0.3 million in the first year of operation, $0.35 million in the second year of operation and thereafter increasing at yearly intervals by 2.0% per annum compound.
Eight years after purchase, a major refit costing $0.8 million will be required. Twenty-five years after purchase, it is assumed that the store will be closed and sold for $2 million.
The retailer requires a rate ofreturn on its investment of 5.0% per annum effective.
Which of the following is the discounted payback period for this investment?10.87 years11.23 years11.32 years11.63 years11.72 years11.83 years12.09 years12.19 years12.3 years12.73 years
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