Bob's Submarine Sandwiches expects annual sales of $180,000, annual fixed cash outlays are $51,750 a year at each location, variable cash outlays are 35 percent of sales, depreciation is $14,000 per year, and taxes are 28% (of pretax income). Opening promotion and other costs require an initial outlay of $66,000. The company does its analysis based on a 8-year store life. Bob believes the business can be sold for $110,000 after taxes (disposal value) at the end of its 8 year lifer. Using a 9% required return, what is the net present value of this venture?
In looking at the answer you provided it looks like the calculation is slightly off. The annual sales are $180,000 and the formulas in your response reflect a $160,000 in expected annual sales. Additionally, the depreciated value is $14,000 per year and return is 9%.