Your family has a good working vegetable stand and wants to expand into selling from a truck, which is on sale now in your town. The sales price of the truck is 1000.0 kEUR. Fortunately you have savings to finance the expansion, so no loans will be needed. Accounting rules allow you to depreciate the truck over 5 years. You are also aware that you could invest your money elsewhere in other opportunities with a similar risk profile with a yearly return of 10.0%. This means that the required rate of return for the project is 10.0%. Projected sales from the truck for the first year are 400. 0 kEUR, which is expected to remain constant for the foreseeable future. The wholesale value of the goods sold is 80.0 every year. You need to keep inventory of 80.0 in order to ensure smooth operation of the store. Inventory needs to be available at the beginning of each fiscal year. Your customers pay cash, and you also pay cash for the vegetables on the wholesale market. Corporate tax is 20.0%, 1. What is the NPV of the expansion project? 2. Would you recommend your family to undertake the project?
Your family has a good working vegetable stand and wants to expand into selling from a truck, which is on sale now in your town. The sales price of the truck is 1000.0 kEUR. Fortunately you have savings to finance the expansion, so no loans will be needed. Accounting rules allow you to depreciate the truck over 5 years. You are also aware that you could invest your money elsewhere in other opportunities with a similar risk profile with a yearly return of 10.0%. This means that the required rate of return for the project is 10.0%. Projected sales from the truck for the first year are 400. 0 kEUR, which is expected to remain constant for the foreseeable future. The wholesale value of the goods sold is 80.0 every year. You need to keep inventory of 80.0 in order to ensure smooth operation of the store. Inventory needs to be available at the beginning of each fiscal year. Your customers pay cash, and you also pay cash for the vegetables on the wholesale market. Corporate tax is 20.0%, 1. What is the NPV of the expansion project? 2. Would you recommend your family to undertake the project?
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
Your family has a good working vegetable stand and wants to expand into selling from a truck, which is on sale now in your town. The sales price of the truck is 1000.0
kEUR. Fortunately you have savings to finance the expansion, so no loans will be needed. Accounting rules allow you to depreciate the truck over 5 years. You are also
aware that you could invest your money elsewhere in other opportunities with a similar risk profile with a yearly return of 10.0%. This means that the required rate of
return for the project is 10.0%.
Projected sales from the truck for the first year are 400. 0 kEUR, which is expected to remain constant for the foreseeable future. The wholesale value of the goods sold
is 80.0 every year. You need to keep inventory of 80.0 in order to ensure smooth operation of the store. Inventory needs to be available at the beginning of each fiscal
year. Your customers pay cash, and you also pay cash for the vegetables on the wholesale market. Corporate tax is 20.0%,
1. What is the NPV of the expansion project?
2. Would you recommend your family to undertake the project?
Transcribed Image Text:Your family has a good working vegetable stand and wants to expand into selling from a truck, which is on sale now in your town. The sales price of the truck is 1000.0
KEUR. Fortunately you have savings to finance the expansion, so no loans will be needed. Accounting rules allow you to depreciate the truck over 5 years. You are also
aware that you could invest your money elsewhere in other opportunities with a similar risk profile with a yearly return of 10.0%. This means that the required rate of
return for the project is 10.0%.
Projected sales from the truck for the first year are 400.0 KEUR, which is expected to remain constant for the foreseeable future. The wholesale value of the goods sold
is 80.0 every year. You need to keep inventory of 80.0 in order to ensure smooth operation of the store. Inventory needs to be available at the beginning of each fiscal
year. Your customers pay cash, and you also pay cash for the vegetables on the wholesale market. Corporate tax is 20.0%.
1. What is the NPV of the expansion project?
2. Would you recommend your family to undertake the project?
+
Answer format: 123.12; For a percent value of 12.34% enter 12.34 (without the percent sign); Negative values should be entered with the minus sign. When given a
choice, pick the result that is correct up to rounding error. "None of the Above" is just as likely to be the correct answer as the others.
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