This Question: 1 pt 2 of 4 This Quiz: 4 pls possibl Darren Mack owns the \"Gas n

Question

This Question: 1 pt 2 of 4 This Quiz: 4 pls possibl Darren Mack owns the "Gas n Go convenience store and gas station. After hearing a marketing lecture, he realizes that it might be possible to draw more customers to his high-margin convenience store by selling his gasoline at a lower price. However, the "Gas n' Go' is unable to quality for volume discounts on its gasoline purchases, and therefore cannot sell gasoline for profit if the price is lowered Each new pump will cost $105,000 to install, but will increase customer traffic in the store by 12,000 customers per year. Also, because the "Gas n' Go" would be selling its gasoline at no profit, Darren plans on increasing the profit margin on convenience store items incrementally over the next five years. Assume a discount rate of 9 percent. The projected convenience store sales per customer and the projected profit margin for the next five years are given in the table below Projected Convenience StoreProjected Profit Year Sales Per Customer $5 $6.50 $8 59 $10 Margin 20% 25% 30% 35% 40% a. What is the NPV of the next five years of cash flows if Darren had five new pumps installed? NPV Enter your responae rounded to two decimal places) b. f Darren required a payback perlod of four years, should he go ahead with the installation of the new pumps? The project Quiz me c undertaken since the payback period is Il years (Enter your response rounded to two decimal places ) Enter your answer in each of the answer boxes Save tor Later Copyright 2018 Pearson Education

Explanation / Answer

Answer a) -$175672

Answer b) No he should not go ahead with 4year payback period, this investment will be in loss for any of the number year less than 8 , with same increasing project profit margin.

NPV for four year will be

-$ 253663

Discount Rate 9% Year Cashflow 0 -$5,25,000.00 1 $60,000.00 2 $78,000.00 3 $96,000.00 4 $1,08,000.00 5 $1,20,000.00 NPV -$1,75,671.79

Answer a) -$175672

Answer b) No he should not go ahead with 4year payback period, this investment will be in loss for any of the number year less than 8 , with same increasing project profit margin.

NPV for four year will be

-$ 253663

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