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Bill plans to open a do-it-yourself taco and margarita station in a hotel main lobby for guests who have to wait a long time to check in
Bill plans to open a do-it-yourself taco and margarita station in a hotel main lobby for guests who have to wait a long time to check in. The equipment will cost $50,000. Bill expects the net cash inflows to be $15,000 annually for 8 years and then sell the equipment for $2,500 at the end of year 8. He will then retire to the beaches of Jamaica.
a) What is the Net Present Value (NPV) of this project with a 10% discount rate? Should we accept/rejectthis project?
$131,084.1370 / Reject
$31,084.1370 / Reject
$131,190.1614 / Accept
$31,190.1614 / Accept
b) What is the Internal Rate of Return (IRR) of this project? A comparable project is earning 30% .Should weaccept/reject this project?
25.1964% / Reject
26.0000% / Accept
25.2574% / Reject
25.2574% / Accept
c) What is the Profitability Index (PI) of this project with a 10% discount rate? Should we accept/reject this project?
1.6238 / Accept
1.6238 / Reject
1.6217 / Accept
.6238 / Reject
Expert Solution
a. Net Present Value of the Project is $31,190.1614 which is positive. So, project should be accepted.
b. Internal Rate of Return (IRR) for the Project is 25.1964% A comparable project is earning 30% So, Project should not be accepted as IRR is lower than given rate.
c. Profitability Index for the Project is 1.6238 which is higher than 1. So, project should be accpeted.
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