Reference no: EM132477981

After paying a consultant $4,000 for a market analysis, a small computer supply company has decided to expand operations and add a new store near the DU campus. They are interested in buying an existing vacant store at a cost of $150,000. They will need to make $10,000 in renovations (improvements) and provide initial working capital of $5,000. The installed costs will be depreciated on a straight-line basis over five years. Net incremental before-tax cash flows (revenues less operating expenses) are expected to be $40,000 per year over the next five years. Net working capital is estimated to increase by $1,000 each year and a return of the initial working capital will occur at the end of the fifth year. Assume the store is sold at the end of five years for $70,000 and its net book value is zero. Assume a 30% tax rate. If the required rate of return is 15%, is this an appropriate project? Why? Perform a capital budgeting analysis to support your position. (Model the Operating Cash Flow, Cash flow from Purchase/Sale of assets and Cash Flow from change in NWC.)