Question One a) A retailer is considering opening a new store as a business venture. The purchase price of the store will be £2 million and there will be a further investment required of £0.5 million 6 months after purchase. The store will open 12 months after purchase. Revenues less running costs are expected to occur continuously and will be £0.2 million in the first year of operation, £0.25 million in the second year of operation and thereafter increasing at yearly intervals by 4% per annum compound. Eight years after purchase, a major refit costing £0.8 million will be required. Fifteen years after purchase, it is assumed that the store will be closed and sold for £6.4million. The retailer requires a rate of return on its investment of 10% per annum effective. i) Calculate the net present value of the venture. It is now assumed that the revenue less running costs will be received mid-way through each year, rather than continuously. ii) Explain how your answer to part (i) would change.
Question One
a) A retailer is considering opening a new store as a business venture. The purchase price of the store will be £2 million and there will be a further investment required of £0.5 million 6 months after purchase. The store will open 12 months after purchase. Revenues less running costs are expected to occur continuously and will be £0.2 million in the first year of operation, £0.25 million in the second year of operation and thereafter increasing at yearly intervals by 4% per annum compound. Eight years after purchase, a major refit costing £0.8 million will be required. Fifteen years after purchase, it is assumed that the store will be closed and sold for £6.4million. The retailer requires a rate of
i) Calculate the
It is now assumed that the revenue less running costs will be received mid-way through each year, rather than continuously.
ii) Explain how your answer to part (i) would change.
Step by step
Solved in 2 steps
