Reference no: EM13915273
Samantha Roberts has a job as a pharmacist earning $30,000 per year, and she is deciding whether to take another job as the manager of another pharmacy for $40,000 per year or to purchase a pharmacy that generates a revenue of $200,000 per year. To purchase the pharmacy, Samantha would have to use her $20,000 savings and borrow another $80,000 at an interest rate of 10percent per year. The pharmacy that Samantha is contemplating purchasing has additional expenses of $80,000 for supplies, $40,000 for hired help, $10,000 for rent, and $5,000 for utilities. Assume that income and business taxes are zero and that the repayment of the principal of the loan does not start before three years. Answer the following question:
a) Suppose that Samantha expects to sell the pharmacy at the end of three years for $50,000 less than the price she paid for it and that she requires a 15 percent return on her investment. Should she still purchase the pharmacy?
b) Compare the present value of economic profit in each of the next three years and the loss of $50,000 in the third year using 15% as the discount rate.
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: Samantha Roberts has a job as a pharmacist earning $30,000 per year, and she is deciding whether to take another job as the manager of another pharmacy for $40,000 per year or to purchase a pharmacy that generates a revenue of $200,000 per year.Compa..
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