Problem
Two young entrepreneurs want to invest $275,000 in a restaurant.
Their business plan shows that the restaurant will generate the following cash flows:
|
Year
|
Cashflow
|
|
1
|
$ 20,000
|
|
2
|
$ 30,000
|
|
3
|
$ 40,000
|
|
4
|
$ 40,000
|
|
5
|
$ 50,000
|
|
6
|
$ 60,000
|
|
7
|
$ 60,000
|
|
8
|
$ 80,000
|
|
9
|
$ 90,000
|
|
10
|
$ 90,000
|
They want to earn at least 12% return
They also would like to have their initial investment recovered within 5 years
Based on the information above, claculate the following:
A. What is the present value?
B. What is the net present value?
C. What is the payback period?
D. Should these entrepreneurs proceed with this investment?