You own a restaurant and are considering buying a liquor license. You estimate that it will costyou $200,000 to buy a five-year license and construct a bar, and that you will generate$40,000 in after-tax cash flows cach year for the next five years. (The cost of the license iscapitalized and the cash flows alrcady 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).b.Assume now that the bar will bring in additional customers to your restaurant. If yourafter- tax operating margin is 60%, how much additional revenue would you have togenerate cach year in your restaurant for the liquor license to make economic sense?

Net present value is the technique used in capital budgeting to evaluate the acceptability of the…

Answered: You own a restaurant and are…

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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I need help solving this problem below on excel. Suppose you purchased equipment and agreed to pay the manufacturer $100,000 in 4 years for the equipment. What should you record the cost of the equipment today if your cost of capital is 5%?
Jerry owns a restaurant and has the opportunity to buy a high-quality espresso coffee machine for $5,000. After carefully studying projected costs and revenues, Jerry estimates that the machine will produce a net cash flow of $1,600 annually and will last for five years. He determines that an interest rate of 10% is an adequate return on investment for his business. Calculate the present value of the machine to Jerry. Based on your calculation, do you think a decision to purchase the machine would be wise?
A real estate investor is considering the purchase of an apartment building that currently provides income of $30,000 and is expected to grow in income by 3% for the next 4 years. You would receive income from today, year 0, through year 4. At the end of year 4, they expect to sell the property for $800,000. The investor has a discount rate of 6%. How much should an investor be willing to pay for this property? Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism.Answer completely.You will get up vote for sure.
Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $32,000 and will be depreciated straight- line over 3 years. It will be sold for scrap metal after 5 years for $8,000. The grill will have no effect on revenues but will save Johnny's $16,000 in energy expenses. The tax rate is 30%. Required: a. What are the operating cash flows in each year? b. What are the total cash flows in each year? c. Assuming the discount rate is 12%, calculate the net present value (NPV) of the cash flow stream. Should the grill be purchased? Complete this question by entering your answers in the tabs below. Required A Required B Required C What are the operating cash flows in each year? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Year 1 2 3 Operating Cash Flows
Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $38,000 and will be depreciated straight-line over 3 years. It will be sold for scrap metal after 5 years for $9,500. The grill will have no effect on revenues but will save Johnny's $19,000 in energy expenses. The tax rate is 30%. Required: What are the operating cash flows in each year? What are the total cash flows in each year? Assuming the discount rate is 12%, calculate the net present value (NPV) of the cash flow stream. Should the grill be purchased? (round answers to 2 decimal places)
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?
A firm that purchases electricity from the local utility for $300,000 per year is considering installing a steam generator at a cost of $340,000. The cost of operating this generator would be $160,000 per year, and the generator will last for five years. If the firm buys the generator, it does not need to purchase any electricity from the local utility. The cost of capital is 11%. For the local utility option, consider five years of electricity purchases. For the generator option, assume immediate installation, with purchase and operating costs in the current year and operating costs continuing for the next four years. Assume payments under both options at the start of each year (i.e., immediate, one year from now,..., four years from now). What is the net present value of the more attractive choice?
You have a chance to invest in a shopping center. The total investment for the purchase of the land and construction of the center is $10,000,000 today. You have calculated the yearly net after tax cash flows from operations as follows: Year 1: $1,500,000 Year 2: 2,000,000 Year 3: 2,250,000 Year 4: 2,500,000 Year 5: 2,750,000 At the end of year 5 you will sell the shopping center for $18,000,000 after taxes. Required: |+ Use the provided Excel spreadsheet to calculate the present value of all the operating after-tax cash flows and the total cash flows for the project assuming you require an 20% R.O.I. Use the attached "PRESENT VALUE TABLE" for your calculations:

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