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You have decided to cash in on the dancing craze i...




You have decided to cash in on the dancing craze in your town, so you are thinking about setting up a dance studio. You can rent a warehouse close to the business district for $40 000 p.a. In order to attract the ?right? sort of clientele, you will need to spend $120 000 on redecorating and installing mirrors on all surfaces. You will also purchase some equipment at a cost of $70 000. You expect that the equipment can be sold at the end of four years for $7 000. Your market research suggests you can attract and maintain 600 students. Each would pay an annual tuition fee of $900. Instructors are usually paid a salary of $43 000 p.a. and you would employ 5 of these to keep the studio operating 7 days a week. You will operate the business for 4 years before retiring. If your cost of capital is 14%, should you set up the business? Calculate IRR and NPV to support your decision.


Paper#3754 | Written in 18-Jul-2015

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