Answer to Question #173169 in Finance for Saad Shabir

Question

Suppose you are considering opening a deli in Rockville Centre. After looking at many potential locations, you find one which you believe is ideal. You purchase the location of a former CVS store. The purchase price of the building was $475,000. In addition, you need to invest another $200 to make the location suitable as a deli store. Assume these capital investments have an average life of five yrs with a $50,000 salvage value 

You estimate your initial investment in working capital is $145,000.  Assume going forward that net working capital is 25% of sales

You estimate first-year sales of $2,300,000 and you expect sales to increase at an annual rate of 2.3%. Your year 1 (2021) cost of goods (COGS) is estimated at 64% of sales and that percent declines 2% annually for the following four years.Your year 1 (2021) annual rent, utilities, insurance and other related costs (SG&A) is $175,000 per year and increases by $2,500 annually for the following four years.

Answer 1

calculate investments, income and expenses in EXCEL

Thus, we can see that by the third year, the investment project will pay off