Mike is considering quitting his job to start a bakery, his dream work. To do so, he would need to make an investment of $80,000 today. He estimates that the bakery would generate revenues of $90,000 over the next five years and would require $20,000 in expenses. At his current job he earns $50,000. Therefore, Mik estimates that the incremental cash flows from opening the bakery would be $20,000 per year for the next five years. Calculate the NPV of the business using a discount rate of 15%. Should Mike quit his job and star the bakery? Calculate the IRR for the project described in problem 3. If Mike requires a return of 15% on the business, should he start the bakery?
Mike is considering quitting his job to start a bakery, his dream work. To do so, he would need to make an investment of $80,000 today. He estimates that the bakery would generate revenues of $90,000 over the next five years and would require $20,000 in expenses. At his current job he earns $50,000. Therefore, Mik estimates that the incremental cash flows from opening the bakery would be $20,000 per year for the next five years. Calculate the NPV of the business using a discount rate of 15%. Should Mike quit his job and star the bakery? Calculate the IRR for the project described in problem 3. If Mike requires a return of 15% on the business, should he start the bakery?
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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Transcribed Image Text:Mike is considering quitting his job to start a bakery, his dream work. To do so, he would need to make an
investment of $80,000 today. He estimates that the bakery would generate revenues of $90,000 over the
next five years and would require $20,000 in expenses. At his current job he earns $50,000. Therefore, Mike
estimates that the incremental cash flows from opening the bakery would be $20,000 per year for the next
five years. Calculate the NPV of the business using a discount rate of 15%. Should Mike quit his job and start
the bakery?
Calculate the IRR for the project described in problem 3. If Mike requires a return of 15% on the business,
should he start the bakery?
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