Instructions Sally owns the East End Pizza Shop. She has been so busy and successful; she wants to open a second store called the West End Pizza Shop. She has lined up investors and a bank loan but before she signs on the dotted line, she is going to crunch some numbers. Here is the information that she has compiled: The cost of the new store's building is $200,000 The cost of new pizza ovens is $12,000 She will have to spend $50,000 to renovate the new building Sally wants to own the new shop for 5 years at which time she will close up and retire in Florida. In 5 years she expects to sell her business for $215,000 She expects to be able to sell 4,000 pizzas in the first year and 5% more pizzas each subsequent year The price of a pizza is $15.00 and costs $4.50 to make On average she sells 3.2 cans of pop with every pizza The price of a can of pop is $2.00 and costs $0.75 from the supplier Her electricity bill will be $500 per year She will have to pay $20,000 per year for part-time staff The combined required rate of return by both her investors and the bank is 12% What is the NPV of the new shop? What is your recommendation? Should she open the new store?
Instructions Sally owns the East End Pizza Shop. She has been so busy and successful; she wants to open a second store called the West End Pizza Shop. She has lined up investors and a bank loan but before she signs on the dotted line, she is going to crunch some numbers. Here is the information that she has compiled: The cost of the new store's building is $200,000 The cost of new pizza ovens is $12,000 She will have to spend $50,000 to renovate the new building Sally wants to own the new shop for 5 years at which time she will close up and retire in Florida. In 5 years she expects to sell her business for $215,000 She expects to be able to sell 4,000 pizzas in the first year and 5% more pizzas each subsequent year The price of a pizza is $15.00 and costs $4.50 to make On average she sells 3.2 cans of pop with every pizza The price of a can of pop is $2.00 and costs $0.75 from the supplier Her electricity bill will be $500 per year She will have to pay $20,000 per year for part-time staff The combined required rate of return by both her investors and the bank is 12% What is the NPV of the new shop? What is your recommendation? Should she open the new store?
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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Question
Transcribed Image Text:Items/ Year
Initial Investment
# Pizza's Sold
Pizza Revenue
Less: Pizza Cost
Net Pizza Cash Flow
# Pop Sold
Pop Revenue
Less: Pop Cost
Net Pop Cash Flow
Electricity
Salaries
Total Other Costs
Proceeds from Sale of Business
Net Cash Flow
Present Values of Cash Flows
NPV
Sally's West End Pizza Shop Opportunity
$
$
$
$
0
'
Pizza Sales
$
$
$
Pop Sales
SS
$
$
$
$
Other Costs
$
1
$
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$
$
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$
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$
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$
2
-
-
-
-
-
-
-
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$
$
$
$
$
$
ess
$
$
in
in
$
$
3
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-
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-
-
-
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-
$
en
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$
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$
s
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SsSs
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$
$
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SSS
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$
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Transcribed Image Text:Instructions
Sally owns the East End Pizza Shop. She has been so busy and successful; she wants
to open a second store called the West End Pizza Shop. She has lined up investors and
a bank loan but before she signs on the dotted line, she is going to crunch some
numbers. Here is the information that she has compiled:
.
.
.
.
.
The cost of the new store's building is $200,000
The cost of new pizza ovens is $12,000
She will have to spend $50,000 to renovate the new building
Sally wants to own the new shop for 5 years at which time she will close up and
retire in Florida. In 5 years she expects to sell her business for $215,000
She expects to be able to sell 4,000 pizzas in the first year and 5% more pizzas
each subsequent year
The price of a pizza is $15.00 and costs $4.50 to make
On average she sells 3.2 cans of pop with every pizza
The price of a can of pop is $2.00 and costs $0.75 from the supplier
Her electricity bill will be $500 per year
She will have to pay $20,000 per year for part-time staff
The combined required rate of return by both her investors and the bank is 12%
What is the NPV of the new shop? What is your recommendation? Should she open
the new store?
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