Question

1. You and a partner are considering the purchase of a convenience store. The store has weekly sales of $92,700 and is paying weekly payroll of $4,500. The cost of goods sold every week is $78,000. The firm has miscellaneous expenses (taxes, insurance, garbage, electricity, natural gas, security, maintenance, property taxes, training, advertising, accounting fees, bank charges, etc.) of roughly $3,000 per week. What are the annual sales for the conenience store?

2. Assume the following cash flows for a convenience store project you are considering, the initial outflow is $657,331 followed by ten operating cash flows $123,550 in years 1 to 10. You will also receive a terminal cash flow of $438,500 also at year 10.

Compute the NPV of the project given an interest rate of 12%.

3. You and a partner are considering the purchase of a convenience store. The store has annual sales of $500,000 and is paying annual payroll of $100,000. The cost of goods sold every year is $150,000. The firm has miscellaneous expenses (taxes, insurance, garbage, electricity, natural gas, security, maintenance, property taxes, training, advertising, accounting fees, bank charges, etc.) of roughly $68,000 per year. If depreciation is equal to $12,717 per year what is the Earnings before taxes?

4. Assume inflation is expected to be 7.3% over the next 10 years and that the expectation is reflected in the cost of capital. What would you expect next years sales to be provided that this years sales are expected to be $4,628,000?

Answer 1

1)

annual sales for the conenience store = 52 weeks * sales per week

=52*92,700

=4,820,400

2) npv is $ 181,939.32

3) earning before tax = sales - cogs- payroll- depreciation- miscellaneous expenses

=$500,000- $150,000-$100,000-$12,717-$68,000

earning before tax=169283

4) expected next year sale= current year sale*(1+inflation rate)

=4,628,000*(1+0.073)

$        4,965,844

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