Reference no: EM132835853

Question - Jane Summers has just inherited $600,000 from her mother's estate. She is considering investing part of these funds in a small catering business. She would need to purchase a delivery van and various equipment costing $100,000 to equip the business and another $50,000 for inventories and other working capital needs. Rent on the building used by the business will be $24,000 per year. Jane's marketing studies indicate that the annual cash inflow from the business will amount to $90,000. In addition to the building rent, other annual cash outflows for operating costs will amount to $30,000. Jane wants to operate the catering business for only six years. She estimates that the equipment could be sold at that time for about 10% of its original cost. Jane's required rate of return is 16%. Compute the net present value of this investment.