Compute the net present value of the project

Assignment Help Accounting Basics

Reference no: EM131928262

Problem

Neil Cawdry is considering opening a hobby and craft store. He would need R 100 000 to equip the business and another R 40 000 for inventories and other working capital needs. Rent on the building used by the business will be R 24 000 per year. Neil estimates that the annual cash flow from the business will amount to R 95 000. Additional cash outflow for operating costs will amount to R 30 000. Neil plans to operate the business for only six years. He estimates that the equipment and furnishings could be sold at that time for 10% of their original amount. The discount rate (cost of capital) is 20%

Required:

Compute the net present value of the project.

Compute the payback period.

Would you recommend the investment?

Reference no: EM131928262

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