Murad is considering starting a small catering business. He would need to purchase a delivery van and various equipment costing $62,500 to equip the business and another $30,000 for working capital needs. Rent for the building used by the business will be $17,500 per year. In addition to the building rent, annual cash outflow for operating costs will amount to $20,000. Murad's marketing studies indicate that the annual cash inflow from the business will amount to $60,000. All of working capital would be released at the end of 7 years. Murad wants to operate the catering business for only seven years. He estimates that the equipment could be sold at that time for 5% of its original cost. Murad uses a 13% discount rate. Use the following present value tables, to determine the appropriate discount factor(s) Present Value of $1; 1 ( 1+r) Periods 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 0.735 0.708 0.683 0.659 0.636 0.613 0.592 0.572 0.552 0.534 0.681 0.650 0.621 0.593 0.567 0.543 0.519 0.497 0.476 0.456 0.456 0.4320.410 0.390 0.400 0.376 0.354 0.333 4 Present Value of an Annuity of $1 in Arrears, lr[1-1(1+r)m] Periods 8% 3.312 3.240 3.170 3.102 3.037 2974 2914 2855 2798 2743 3.993 3.890 3.791 3.696 3.605 3.517 3.433 3352 3274 3.199 4.623 4.231 4.111 5.206 5.033 4.868 4.712 4.564 4423 4160 4.039 9% 10% 11% 12% 13% 14% 15% 16% 17% 0.630 0.596 0.564 0.535 0.507 0.480 0.583 0.5470.513 0.482 0.452 0.425 6. 4 5 6. 4,486 4.355 3.998 3.889 3.784 4.288 3.685 3.589 3.922 Required: Compute the net present value of this investment.
Murad is considering starting a small catering business. He would need to purchase a delivery van and various equipment costing $62,500 to equip the business and another $30,000 for working capital needs. Rent for the building used by the business will be $17,500 per year. In addition to the building rent, annual cash outflow for operating costs will amount to $20,000. Murad's marketing studies indicate that the annual cash inflow from the business will amount to $60,000. All of working capital would be released at the end of 7 years. Murad wants to operate the catering business for only seven years. He estimates that the equipment could be sold at that time for 5% of its original cost. Murad uses a 13% discount rate. Use the following present value tables, to determine the appropriate discount factor(s) Present Value of $1; 1 ( 1+r) Periods 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 0.735 0.708 0.683 0.659 0.636 0.613 0.592 0.572 0.552 0.534 0.681 0.650 0.621 0.593 0.567 0.543 0.519 0.497 0.476 0.456 0.456 0.4320.410 0.390 0.400 0.376 0.354 0.333 4 Present Value of an Annuity of $1 in Arrears, lr[1-1(1+r)m] Periods 8% 3.312 3.240 3.170 3.102 3.037 2974 2914 2855 2798 2743 3.993 3.890 3.791 3.696 3.605 3.517 3.433 3352 3274 3.199 4.623 4.231 4.111 5.206 5.033 4.868 4.712 4.564 4423 4160 4.039 9% 10% 11% 12% 13% 14% 15% 16% 17% 0.630 0.596 0.564 0.535 0.507 0.480 0.583 0.5470.513 0.482 0.452 0.425 6. 4 5 6. 4,486 4.355 3.998 3.889 3.784 4.288 3.685 3.589 3.922 Required: Compute the net present value of this investment.
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
![Murad is considering starting a small catering business. He would need to purchase a delivery van and various equipment costing $62,500 to equip the business and another $30,000 for working capital needs.
Rent for the building used by the business will be $17,500 per year. In addition to the building rent, annual cash outflow for operating costs will amount to $20,000. Murads marketing studies indicate that the
annual cash inflow from the business will amount to $60,000. All of working capital would be released at the end of 7 years. Murad wants to operate the catering business for only seven years. He estimates that
the equipment could be sold at that time for 5% of its original cost. Murad uses a 13% discount rate.
Use the following present value tables, to determine the appropriate discount factor(s)
Present Value of $1; 1 (1 +r)
Periods
S%
9% 10% 11%
16% 17%
0.572 0.5520.534
0.497 0.476 0.456
0.630 0.596 0.564 0.535 0.507 0.480 0.456 0.432 | 0.410 0.390
12%
13%
14%
15%
0.735 0.708 0.683 0.659 0.636 0.613 0.592
0.681 0.650 0.621 0.593 0.567 0,543 0.519
4
Present Value of an Annuity of S1 in Arrears, 1r[1-1(1+r)m]
5
Periods
8%
3.312 3.240
3.993
4.623
5.206 5.033 4.868 4.712 4.564 4423 4.288 4 160
9%
10%
11%
12%
13% 14%
15%
17%
2.798 2.743
3.352 3.274 3.199
3.589
4.039 3.922
16%
6.
4
3.240 3.170 3.102 3.037
3.890 3.791 3.696 3.605 3.517 3.433
4.486 4.355
2974 2914 2855
7.
0.583 0.5470.513 0.482 0.452 0.425 | 0.400
0.376 0.3540.333
4.231 4.111 3.998 3 889 3.784 3.685
Required:
Compute the net present value of this investment.
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Transcribed Image Text:Murad is considering starting a small catering business. He would need to purchase a delivery van and various equipment costing $62,500 to equip the business and another $30,000 for working capital needs.
Rent for the building used by the business will be $17,500 per year. In addition to the building rent, annual cash outflow for operating costs will amount to $20,000. Murads marketing studies indicate that the
annual cash inflow from the business will amount to $60,000. All of working capital would be released at the end of 7 years. Murad wants to operate the catering business for only seven years. He estimates that
the equipment could be sold at that time for 5% of its original cost. Murad uses a 13% discount rate.
Use the following present value tables, to determine the appropriate discount factor(s)
Present Value of $1; 1 (1 +r)
Periods
S%
9% 10% 11%
16% 17%
0.572 0.5520.534
0.497 0.476 0.456
0.630 0.596 0.564 0.535 0.507 0.480 0.456 0.432 | 0.410 0.390
12%
13%
14%
15%
0.735 0.708 0.683 0.659 0.636 0.613 0.592
0.681 0.650 0.621 0.593 0.567 0,543 0.519
4
Present Value of an Annuity of S1 in Arrears, 1r[1-1(1+r)m]
5
Periods
8%
3.312 3.240
3.993
4.623
5.206 5.033 4.868 4.712 4.564 4423 4.288 4 160
9%
10%
11%
12%
13% 14%
15%
17%
2.798 2.743
3.352 3.274 3.199
3.589
4.039 3.922
16%
6.
4
3.240 3.170 3.102 3.037
3.890 3.791 3.696 3.605 3.517 3.433
4.486 4.355
2974 2914 2855
7.
0.583 0.5470.513 0.482 0.452 0.425 | 0.400
0.376 0.3540.333
4.231 4.111 3.998 3 889 3.784 3.685
Required:
Compute the net present value of this investment.
For the toolbar. press ALT+F10 (PC) or ALT+FN+F10 (Mac).
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