Craig is considering whether to add another landscaping location in a growing community west of his current location. Craig has the opportunity to purchase an existing landscaping business for $2,050,000. Once the new community is built and “set up” his business and services will no longer be needed. He believes this location will be viable for 8 years. Since this will be a major investment he wants to use several methods to evaluate this investment - methods that will consider the time value of money and other methods that do not. He feels this is the best way to get a true picture of whether he should invest. The new location will generate annual net cash inflows of $515,000 for the 8 years. It is estimated that the facility will remain useful for the full 8 years and no have no residual value. Craig will use straight-line depreciation. Craig wants a payback in less than 5 years and an ARR of 12% or more Craig may need to obtain a loan, so he will use a 14% hurdle rate on this potential investment. Requirements: 1. Compute the payback period, the ARR (accounting rate of return), the NPV (net present value) and the approximate IRR. Use the attached Excel spreadsheet to complete these calculations. 2. After calculating and evaluating your answers, write a short memo to Craig and recommend to him whether you think he should invest in this new location. Be sure to include why or why not. Also include in the memo a small chart or table showing the results of your analysis.
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Craig is considering whether to add another landscaping location in a growing community west of his current location. Craig has the opportunity to purchase an existing landscaping business for $2,050,000. Once the new community is built and “set up” his business and services will no longer be needed. He believes this location will be viable for 8 years. Since this will be a major investment he wants to use several methods to evaluate this investment - methods that will consider the
The new location will generate annual net
Requirements:
1. Compute the payback period, the ARR (accounting
2. After calculating and evaluating your answers, write a short memo to Craig and recommend to him whether you think he should invest in this new location. Be sure to include why or why not. Also include in the memo a small chart or table showing the results of your analysis.
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