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company and its absorption costing income statement for the last year ar
e
presented below.
Units in beginning inventory 2,000
Units produced 9,000
Units sold 10,000
Sales $100,000
Less cost of goods sold:
Beginning inventory 12,000
Add cost of goods manufactured 54,000
Goods available for sale 66,000
Less ending inventory 6,000
Cost of goods sold 60,000
Gross margin 40,000
Less selling and admin. expenses 28,000
Net operating income $12,000
2. Question : (TCO I) (Ignore income taxes in this problem.) Bill Anders
retires in 8 years.
He has $650,000 to invest and is considering a franchise for a fast-food
outlet. He would have to purchase equipment costing $500,000 to equip
the
outlet and invest an additional $150,000 for inventories and other workin
g
capital needs. Other outlets in the fast-
food chain have an annual net cash
inflow of about $160,000. Mr. Anders would close the outlet in 8 years.
He
estimates that the equipment could be sold at that time for about 10% of
its
original cost. Mr. Anders' required rate of return is 16%.
Required:
Part A: What is the investment's net present value when the discount rate
is
16%?