Question

Instructions Sally owns the East End Pizza Shop. She has been so busy and successful; she wants to open a second store called the West End Pizza Shop. She has lined up investors and a bank loan but before she signs on the dotted line, she is going to crunch some numbers. Here is the information that she has compiled: • The cost of the new store’s building is $200,000 • The cost of new pizza ovens is $12,000 • She will have to spend $50,000 to renovate the new building • Sally wants to own the new shop for 5 years at which time she will close up and retire in Florida. In 5 years she expects to sell her business for $215,000 • She expects to be able to sell 4,000 pizzas in the first year and 5% more pizzas each subsequent year • The price of a pizza is $15.00 and costs $4.50 to make • On average she sells 3.2 cans of pop with every pizza • The price of a can of pop is $2.00 and costs $0.75 from the supplier • Her electricity bill will be $500 per year • She will have to pay $20,000 per year for part-time staff • The combined required rate of return by both her investors and the bank is 12% • What is the NPV of the new shop? What is your recommendation? Should she open the new store?

          Instructions

Sally owns the East End Pizza Shop. She has been so busy and successful; she wants to open a second store called the West End Pizza Shop. She has lined up investors and a bank loan but before she signs on the dotted line, she is going to crunch some numbers. Here is the information that she has compiled:

• The cost of the new store’s building is $200,000
• The cost of new pizza ovens is $12,000
• She will have to spend $50,000 to renovate the new building
• Sally wants to own the new shop for 5 years at which time she will close up and retire in Florida. In 5 years she expects to sell her business for $215,000
• She expects to be able to sell 4,000 pizzas in the first year and 5% more pizzas each subsequent year
• The price of a pizza is $15.00 and costs $4.50 to make
• On average she sells 3.2 cans of pop with every pizza
• The price of a can of pop is $2.00 and costs $0.75 from the supplier
• Her electricity bill will be $500 per year
• She will have to pay $20,000 per year for part-time staff
• The combined required rate of return by both her investors and the bank is 12%
• What is the NPV of the new shop? What is your recommendation? Should she open the new store?

Instructions

Sally owns the East End Pizza Shop. She has been so busy and successful; she wants to open a second store called the West End Pizza Shop. She has lined up investors and a bank loan but before she signs on the dotted line, she is going to crunch some numbers. Here is the information that she has compiled:

• The cost of the new store’s building is 200,000
• The cost of new pizza ovens is12,000
• She will have to spend 50,000 to renovate the new building
• Sally wants to own the new shop for 5 years at which time she will close up and retire in Florida. In 5 years she expects to sell her business for215,000
• She expects to be able to sell 4,000 pizzas in the first year and 5% more pizzas each subsequent year
• The price of a pizza is 15.00 and costs4.50 to make
• On average she sells 3.2 cans of pop with every pizza
• The price of a can of pop is 2.00 and costs0.75 from the supplier
• Her electricity bill will be 500 per year
• She will have to pay20,000 per year for part-time staff
• The combined required rate of return by both her investors and the bank is 12%
• What is the NPV of the new shop? What is your recommendation? Should she open the new store?

Added by Thomas O.

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