You are thinking of buying a startup cosmetics company. The cost to purchase the startup is$3,500,000. You expect to be able to sell half of your ownership stake for $2,250,000 three yearsfrom now (after 3 years). After you bring in additional investors, you think that the buzz for thecompany will increase so that you can sell the other half of your ownership stake for $2,500,000four years from now (after 4 years). Your relevant interest rate is 8%. What is the net present value(NPV) of this investment?$123,697.17$382,956.43$413,592.95$726,680.38$114,534.42

The Net Present Value (NPV) is a financial metric that is widely used in capital budgeting and…

Answered: You are thinking of buying a startup…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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After years of working hard and finally becoming a millionaire, you would like to reward yourself by buying a sports car. Dealer A offers a model that you like for just RM1.8 million, if purchased and fully paid now. Dealer B offers the same model for RM2 million, but you can pay for the car after 2 years of ownership. Determine which offer is economically better, considering interest rate of 5% per year. Explain your answer.
Sally is thinking about starting a new business. The company would require $700,000 of assets, financed with 40% debt and 60% equity. She will go forward only if she thinks the firm can provide an ROE of at least 15.9%. Operating at a profit margin of 12%, what is the minimum amount of sales that must be expected to support starting the business? Your answer should be between 472000 and 595000, rounded to even dollars (although decimal) places are okay), with no special characters.
As the owner of a small startup, you are faced with a fewmajor financial decisions concerning the expansion orpotential sale of your business. Based on the followingdetails, you must calculate the Present Value, Future Value,Loan Amortization and NPV/Firm Value.Present Value:You are required to have $250,000 seven years from nowfor new manufacturing equipment. Not sure how much youwill need to save as a lump-sum today, you calculate thepresent value (for the beginning of the period) with thefollowing additional details. Interest Rate of 6% with nofuture deposits.Future Value:To take advantage of the rising interest rate environmentthrough the actions of the Federal Reserve, you decide toinvest in U.S. Treasury Bills maturing in one year. Curious toknow what your investment will be worth one year fromtoday, you calculate the future value (for the end of theperiod) based on the following details. Number of period isone, interest rate is 5.25% (compounded monthly), no futuredeposits,…
Assume that you are thinking about starting your own small business. You have made the following estimates regarding this opportunity: • You can rent a location for your business at a cost of $36,000 per year. The equipment costs incurred to start the business would total $250,000. The equipment would have a 5-year useful life and a salvage value of $25,000 Your company's estimated sales per year would equal $350,000 and its variable cost of goods sold would be 30% of sales. • Other operating costs would include $58,000 per year in salaries, $4,000 per year for insurance, $25,000 per year for utilities, and a 3% sales commission The simple rate of return for this investment opportunity is closest to: Multiple Choice 22.0% 19.0% 26.6% 15.7%
You own a restaurant and are considering buying a liquor license. You estimate that it will cost you $200,000 to buy a five-year license and construct a bar, and that you will generate $40,000 in after-tax cash flows each year for the next five years. (The cost of the license is capitalized and the cash flows already reflect the depreciation). If your cost of capital is 15%, estimate the net present value of buying a liquor license. (There is no salvage value at the end of the 5 year). ( z a li). ".(
You have just completed a $15,000 feasibility study for a new coffee shop in some retail space you own. You bought the space two years ago for $96,000, and if you sold it today, you would net $114,000 after taxes. Outfitting the space for a coffee shop would require a capital expenditure of $35,000 plus an initial investment of $5,500 in inventory. What is the correct initial cash flow for your analysis of the coffee shop opportunity?
Mansuk
Coming Up Roses has grown into a very successful business and you have just received an offer from someone to purchase the business from you for $1.2 million. The potential buyer has offered you $400,000 at the time of sale, $600,000 at the end of the growing season, in 6 months, and the balance, $200,000 in 1.5 years from now. What is the present value of this offer if you could invest at 6% compounding monthly?
The president of Real Time Inc. has asked you to evaluate the proposed acquisition of a new computer. The computer's price is $70,000, and it falls into the MACRS 3-year class. Purchase of the computer would require an increase in net operating working capital of $2,000. The computer would increase the firm's before-tax revenues by $30,000 per year but would also increase operating costs by $15,000 per year. The computer is expected to be used for 3 years and then be sold for $25,000. The firm's marginal tax rate is 40 percent, and the project's cost of capital is 14 percent.What is the net cash flow at t = 0? Cash outflow should be in negative number, e.g., -33,000, and do not include the $ sign.
Nikul

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