Question

Sara’s Cake Company has gotten an offer from a grocery store to open up a satellite location inside the bakery of the store. You are hired as a consultant to look at the feasibility of this investment. You need to go through the following numbers to calculate the NPV and IRR of the satellite location. The proposal contract from the grocery store states that it will charge her $2,000 rent per month. Her gross profit per cake (aside from rent) is $7 per cake. The grocery store will buy 500 cakes per month. The lease will be for 5 years and it will cost Sara $25,000 to build the mini bakery room out. Saras cost of capital is 6%. Please show how each answer is calculated.

Answer 1