Naomi has always wanted to open a cyber coffee shop and has made her cash flow p

Question

Naomi has always wanted to open a cyber coffee shop and has made her cash flow projections. She estimates that it will cost her $225,000 to develop the project, and the cash flows for the next six years will be $45,000, $69,000 , $125,000, $185,000, $189,000 and $200,000 respectively.

1. If her cost of capital is 9.5%, what is the net present value and internal rate of return of her project ?

2. Should she accept or reject this investment ?

3. What would be the payback period for Naomi's proposal in the preceding question ?

4. If the maximum allowable time is 2.5 years, should Naomi accept this project ?

Explanation / Answer

yes he should accept the project

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