You have just completed a $18,000 feasibility study for a new coffee shop in som

Question

You have just completed a $18,000 feasibility study for a new coffee shop in some retail space you own. You bough the space two years ago for $96,000, but if you sold it today, you would net $115,000 after taxes. Outfitting the space for a coffee shop would require a capital expenditure of $30,000 plus an initial investment of $5,200 in inventory. What is the correct initial cash flow for your analysis of the coffee shop opportunity? Opportunity Cost=____________________ Capital Expenditure=_________________ Change in Net Working Capital=________ _________ Free Cash Flow=

Explanation / Answer

Your opportunity cost is the value that you lose, in this case -115,000. Capex is outfitting the shop at 30,000 and changes in NWC is 5200. Since you subtract capex and NWC, your total is -115,000-30,000-52,00 = -150,200

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