Answer to Question #173169 in Finance for Saad Shabir

Question #173169

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.

Expert's answer

calculate investments, income and expenses in EXCEL

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

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