a)
Case summary:
Company DCD is the largest distributor of graphic novels and comics in the world. In the year 2013, Company DCD came up with a new plan to help the comic book stores to expand.
The cost of opening a new store has to make a lot of investment to fill the shelves with the inventory of the merchandise. The company must look at the inflows and outflows to make the relevant decisions.
To calculate: The
Introduction:
Net present value (NPV):
It is the difference between the present value of
Internal rate of return:
It is a method to calculate the profitability of the potential investments. It is a discount rate which makes the net present value as zero.
a)
Explanation of Solution
Given information:
Investment = $400,000
Cashflow = $62,000
Tax rate = 35%
Calculation of after-tax annual cash flow:
After-tax cash flow in terminal year:
Calculation of NPV and IRR:
Formula:
b)
To calculate: The net
Introduction:
Net present value (NPV):
It is the difference between the present value of cash inflows and cash outflows within a period of time.
Internal rate of return:
It is a method to calculate the profitability of the potential investments. It is a discount rate which makes the net present value as zero.
b)
Explanation of Solution
Given information:
Investment = $300,000
Cashflow = $62,000
Tax rate = 35%
Calculation of after-tax annual cash flow:
After-tax cash flow in terminal year:
Calculation of NPV and IRR:
Formula:
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