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Gabel’s Bierock’s and Pastries, a retail store in Hays Kansas, plans a $20,000 capital investment this...

Gabel’s Bierock’s and Pastries, a retail store in Hays Kansas, plans a $20,000 capital investment this year (year 0) to expand and hopefully increase sales in the future. It uses an internal rate of return of 3% (IRR = 0.03) for proposing new investment projects and financial decision-making.

In year 1, the company does not expect additional revenues from the expansion. However, starting in year 2 and continuing into the future, the company expects additional revenues of $6000 per year.

A) Keep a running total of the net present value after each year’s revenues.

B) After how many years (not fractions of a year) will the revenues finally pay-back the initial investment at the current IRR?

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B. Years required to pay back initial investment = 5 Years

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