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-2015Price : $25