The Milwaukee Bucks are considering whether they should add an additional vending area, at a cost of $500,000, to the new arena in downtown Milwaukee. They will only make the investment if it will result in an ROR of 15% or higher. The revenue is expected to be between $138,000 and $165,000 per year for five years. Use a present worth analysis to determine if the decision to invest is sensitive to the projected range of revenue.

The required cash flow to earn 15% per year is $ 149,157.8

Now, If the expected cash flow is more than $ 149,157.8 per year, they can invest the amount, else it is not suggestible/advisable.

Explanation:

Solution

Given that:

Milwaukee Bucks are considering whether they should add an additional vending area, at a cost of = $500,000

The investment to be made will result in a ROR = 15%

Expected revenue = between $138,000 and $165,000

Now,

The Computation of Required Cash flow per year is stated as follows:

= Initial Investment / PVAF (r%, n )

= $ 500,000 / PVAF (15%, 5)

= $ 500,000 / 3.3522

= $ 149,157.8

Thus,

The required flow of cash to earn 15% per year is $ 149,157.8

If the expected cash flow is more than $ 149,157.8 per year, they can invest the amount, else it is not suggestible.

1) the stages a new product goes through from beginning to end, i.e., the stages that a product passes through from introduction through growth, maturity, and decline. 2) the time from initial research and development to the time at which sales and support of the product to customers are withdrawn. 3) the period of time during which a product can be produced and marketed profitably.

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