Wildcat Pizza, Inc. would like to open a new restaurant in Boston. The initial investment to purchase the building is $420,000, and an additional $50,000 in working capital is required. Since this store will be operating for many years, the working capital will not be returned in the near future.Wildcat expects to remodel the store at the end of 3 years at a cost of $100,000. Annual net cash receipts from daily operations (cash receipts minus cash payments) are expected to be as follows:Year 1$80,000Year 2$115,000Year 3$118,000Year 4$140,000Year 5$155,000Year 6$167,000Year 7$175,000The company’s required rate of return is 13 percent. Assume management decided to limit the analysis to 7 years.Find the net present value of this investment. = 81, 067Use trial and error to approximate the internal rate of return for this investment proposal.Calculate the payback period (include working capital in the initial investment). Assuming management requires all investments to be recovered within three years, should Wildcat Pizza open the new store?

Explanation of concept This is the concept related to discounted cash flow. In this discounted…

Answered: 0,000, and an additional $50,000 in…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 21P

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Wildcat Pizza, Inc. would like to open a new restaurant in Boston. The initial investment to purchase the building is $420,000, and an additional $50,000 in working capital is required. Since this store will be operating for many years, the working capital will not be returned in the near future.

Wildcat expects to remodel the store at the end of 3 years at a cost of $100,000. Annual net cash receipts from daily operations (cash receipts minus cash payments) are expected to be as follows:

Year 1	$80,000
Year 2	$115,000
Year 3	$118,000
Year 4	$140,000
Year 5	$155,000
Year 6	$167,000
Year 7	$175,000

The company’s required rate of return is 13 percent. Assume management decided to limit the analysis to 7 years.

Find the net present value of this investment. = 81, 067
Use trial and error to approximate the internal rate of return for this investment proposal.
Calculate the payback period (include working capital in the initial investment). Assuming management requires all investments to be recovered within three years, should Wildcat Pizza open the new store?

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