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FinanceQ&A Library6:04IMG_0743.jpgXYou are the CFO of Carla Vista, Inc., a retailer of the exercise machine Slimbody6 and related accessories. Your firm is considering opening up a new store in Los Angeles. The store will have alife of 20 years. It will generate annual sales of 4,400 exercise machines, and the price of each machine is $2,500. The annual sales of accessories will be $600,000, and the operatingexpenses of running the store, including labor and rent, will amount too 50 percent of the revenues from the exercise machines. The initial investment in the store will equal $33,500,000 andwill be fully depreciated on a straight-line basis over the 20-year life of the store. Your firm will need to invest $2,500,000 in additional working capital immediately, and recover it at the endof the investment. Your firm's marginal tax rate is 30 percent. The opportunity cost of opening up the store is 17.40 percent. What are the incremental free cash flows from this project at thebeginning of the project as well as in years 1-19 and 20? (Do not round intermediate calculations. Round NPV answer to 2 decimal places, e.g. 5,265.25 and all other answers to thenearest dollar, e.g. 5,265.)Incremental cash flow at the beginning of the project$Incremental cash flow in the years 1-19Incremental cash flow in the year 20NPV of the projectShould you approve it?the projectYouQuestion

Asked Oct 20, 2019

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Step 1

The initial investment cost of store is $33,500,000.

According to straight line depreciation, the annual depreciation is calculated below:

Step 2

Cash outflow at the beginning of project is calculated below:

Step 3

Annual revenue is cal...

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