Question: Assume you want to start a business. What would be the NPV of that bus
ID: 2652681 • Letter: Q
Question
Question:
Assume you want to start a business. What would be the NPV of that business? Be creative!
For example, if I want to open a restaurant, I estimate my cash flows and NPV as follows:
CF0: ($100,000) cost to obtain licenses, insurance, and equipment
CF1: (10,000) lossed during first few years of operations
Nj: 5 (for first 5 years)
CF6: $50,000
Nj: for next 5 years
CF11: $100,000 (when I become a master chef)
Nj: for 25 years
CF36: $1,000,000 (when I sell my restaurant business)
i: 10% (based on loan from bank to start my business)
f NPV = ?
Explanation / Answer
Statement showing calculation of NPV Particulars Time PVF@10% Amount PV(Amount *PVF) Cash Outflows - 1.0000 (100,000.000) (100,000.00) PV of Cash Outflows (100,000.00) Cash Inflows 1.000 0.9091 (10,000.000) (9,090.91) Cash Inflows 6.000 0.5645 50,000.000 28,223.70 Cash Inflows 11.000 0.3505 100,000.000 35,049.39 Cash Inflows 36.000 0.0323 1,000,000.000 32,349.18 PV of Cash Inflows 86,531.3617 NPV (13,468.6383) Time PVF WN 1.00 0.909 1/1.10 2.00 0.826 .909/1.10 3.00 0.751 4.00 0.683 5.00 0.621 6.00 0.564 7.00 0.513 8.00 0.467 9.00 0.424 10.00 0.386 11.00 0.350 12.00 0.319 13.00 0.290 14.00 0.263 15.00 0.239 16.00 0.218 17.00 0.198 18.00 0.180 19.00 0.164 20.00 0.149 21.00 0.135 22.00 0.123 23.00 0.112 24.00 0.102 25.00 0.092 26.00 0.084 27.00 0.076 28.00 0.069 29.00 0.063 30.00 0.057 31.00 0.052 32.00 0.047 33.00 0.043 34.00 0.039 35.00 0.036 36.00 0.032
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