Benford Inc. is planning to open a new sporting goods store in a suburban mall. Benford will lease the needed space in the mall. Equipment and fixtures for the store will cost $350,000 and be depreciated to $0 over a 5-year period on a straight-line basis. The new store will require Benford to increase its net working capital by $300,000 at time 0. First-year sales are expected to be $0.9 million and to increase at an annual rate of 10 percent over the expected 10-year life of the store. Operating expenses (including lease payments but excluding depreciation) are projected to be $700,000 during the first year and to increase at an 8 percent annual rate. The salvage value of the store’s equipment and fixtures is anticipated to be $20,000 at the end of 10 years. Benford’s marginal tax rate is 40 percent. Calculate the store’s net present value, using a 17 percent required return. Use Table II to answer the question. Round your answer to the nearest dollar. $ Should Benford accept the project? Calculate the store’s internal rate of return. Round your answer to one decimal place. % Calculate the store’s profitability index. Round your answer to two decimal places.
Benford Inc. is planning to open a new sporting goods store in a suburban mall. Benford will lease the needed space in the mall. Equipment and fixtures for the store will cost $350,000 and be
First-year sales are expected to be $0.9 million and to increase at an annual rate of 10 percent over the expected 10-year life of the store. Operating expenses (including lease payments but excluding depreciation) are projected to be $700,000 during the first year and to increase at an 8 percent annual rate. The salvage value of the store’s equipment and fixtures is anticipated to be $20,000 at the end of 10 years. Benford’s marginal tax rate is 40 percent.
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Calculate the store’s
net present value , using a 17 percent required return. Use Table II to answer the question. Round your answer to the nearest dollar.
$ -
Should Benford accept the project?
-
Calculate the store’s
internal rate of return . Round your answer to one decimal place.
% -
Calculate the store’s profitability index. Round your answer to two decimal places.
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