Q4. Steve Chen, a third-year electrical engineering student, is really into gaming. He and allof his friends like online multi-player games, but are annoyed by delays caused by slowinternet connections. Sometimes they link their own computers into local networks andplay, but it's hard to find a place to play and their laptops are not the best machines forgaming. On his work term in Abu Dhabi, Steve noticed that gaming halls are popular.High-level networked game machines are located in malls, and people rent the machinesby the hour for playing games either with each other or over a very fast internet connection.Steve expects to be on campus for the next five years and sees an opportunity insetting up a similar business at the mall next to his university. The first cost for equipment,furniture, and software is expected to be $70 000. Students will be able to renttime on the computers by the hour, and Steve will be able to augment this income withsome auxiliary services. Net annual cash flow, after paying for labour, supplies, and othercosts, is expected to be $30 000 a year for five years. When Steve finishes his graduateprogram in five years, he plans to close the business. The five-year-old equipment andfurniture are expected to have zero value. If investors in this type of service enterprisedemand a return of 20 percent per year, is this a good investment? Preform PW or AW analysis formaking your decision

Cost of equipment =70000 Annual cash flow =30000 Period =5 years Cost of capital =20% Needed…

costs, is expected to be $30 000 a year for five years. When Steve finishes his graduate program in five years, he plans to close the business. The five-year-old equipment and furniture are expected to have zero value. If investors in this type of service enterprise demand a return of 20 percent per year, is this a good investment? Preform PW or AW analysis fo making your decision

costs, is expected to be $30 000 a year for five years. When Steve finishes his graduate program in five years, he plans to close the business. The five-year-old equipment and furniture are expected to have zero value. If investors in this type of service enterprise demand a return of 20 percent per year, is this a good investment? Preform PW or AW analysis fo making your decision

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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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

Q4. Steve Chen, a third-year electrical engineering student, is really into gaming. He and all
of his friends like online multi-player games, but are annoyed by delays caused by slow
internet connections. Sometimes they link their own computers into local networks and
play, but it's hard to find a place to play and their laptops are not the best machines for
gaming. On his work term in Abu Dhabi, Steve noticed that gaming halls are popular.
High-level networked game machines are located in malls, and people rent the machines
by the hour for playing games either with each other or over a very fast internet connection.
Steve expects to be on campus for the next five years and sees an opportunity in
setting up a similar business at the mall next to his university. The first cost for equipment,
furniture, and software is expected to be $70 000. Students will be able to rent
time on the computers by the hour, and Steve will be able to augment this income with
some auxiliary services. Net annual cash flow, after paying for labour, supplies, and other
costs, is expected to be $30 000 a year for five years. When Steve finishes his graduate
program in five years, he plans to close the business. The five-year-old equipment and
furniture are expected to have zero value. If investors in this type of service enterprise
demand a return of 20 percent per year, is this a good investment? Preform PW or AW analysis for
making your decision

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