07 Feb Benford, Inc is planning to open a new sporting go
Benford, Inc is planning to open a new sporting goods store in the suburban mall. Benford will lease the needed space in the mall. Equipment and fixtures for the store will cost $200,000 and be depreciated over a 5-year period on a straight-line basis to $0. The new store will require Benford to increase its net working capital by $200,000 at time, 0; thereafter, net working capital balances are expected to equal 20 percent of the following year’s sales. First-year sales are expected to be $1 million and to increase at a rate of 8 percent over the expected 10-years life of the store. Operating expenses (including lease payments and excluding depreciation) are projected to equal 70 percent of sales. The salvage value of the store’s equipment and fixtures is anticipated to be $10,000 at the end of 10 years. Benford’s marginal tax rate is 40 percent. . what is the NPV (Net Present Value) for 18 percent required return? should Benford accept the project? calculate the stores internal rate of return, calculate the stores profitability index
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