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Finance question involving Net Present Value and Internal Rate of Return related to Tax Rate




Question;Suppose that the current cost of;opening such a store is $400,000 and that $250,000 of that initial investment;is the cost of stocking the shelves with new inventory. Suppose also that the;annual operating cash inflow from running an average comic book store is about;$62,000 before taxes and that the tax rate is 35%.;a. Assuming that the average comic book store;has a life of about 10 years, what is the NPV of opening a new store if the;required rate of return in this business is 10%? You may assume that the;$250,000 in initial inventory will be recovered at the end of the tenth year;(in addition to the annual operating cash flow for that year). What is the IRR;that one can earn by opening up a new store?;b. Assume that by offering merchandise;discounts to customers who are opening new stores Diamond can reduce the;required initial inventory investment from $250,000 to $150,000. Maintaining;all other assumptions as previously stated, how will that affect the NPV and;IRR earned on a new comic book store?


Paper#47433 | Written in 18-Jul-2015

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