22 Jul CALCULATE THE STORES INTERNAL RATE OF RETURN.
FARAH is planning to open a new sporting goods store in a suburban mall. FARAH will lease the needed Show more FARAH is planning to open a new sporting goods store in a suburban mall. FARAH will lease the needed space in the mall. Equipment and fixtures for the store will cost $200000 and be depreciated to $0 over a five-year period on a straight line basis. The new store will require FARAH to increase its net working capital by $200000 at time 0. First year sales are expected to be $1 million and to increase at an annual rate of 8 percent over the expected 10-year life of the store. Operating expenses (including lease payments but excluding depreciation) are projected to be to be $700000 during the first year and to increase at a 7 percent annual rate. The salvage value of the stores equipment and fixtures is anticipated to be $10000 at the end of 10 years. FARAHs marginal tax rate is 40 percent. Calculate the stores net present value using a 12 percent weighted average cost of capital. Should FARAH accept the project? Calculate the stores internal rate of return. Calculate the projects payback. Show less
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