Part B: New Location Rhonda has found a location for the next store she plans to open....

90.2K

Verified Solution

Question

Finance

Part B: New Location
Rhonda has found a location for the next store she plans toopen. The store front will require $30,000 in renovations before itis ready to open. She would like the initial investment to be paidoff in 5 years. Assuming a discount rate of 4.5%, what will herannual profits for the store need to be if she wishes to recoverthe $30,000 in 5 years (assuming equal profits each year)?
What if the discount rate increased to 7.75%? What would herannual profits need to be to recover the $30,000 in 5 years?
If Rhonda expects profits from the new location in Part B to be$7,250 annually, should she open the new location? First, if thediscount rate is 4.5%? Then, if the discount rate is 7.75%?
Please show your work so I can understand how you get to theanswers.Â Â
Thank you!

Answer & Explanation Solved by verified expert

4.3 Ratings (780 Votes)

Rhonda aims at recovering the initial investment of 30000 in 5 years time This implies that the present value of the annual profits over the 5 years of the project should sum up to equal the initial See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member