Darren Mack owns the? "Gas n'? Go" convenience store and gasstation. After hearing a marketing? lecture, he realizes that itmight be possible to draw more customers to his? high-marginconvenience store by selling his gasoline at a lower price.?However, the? "Gas n'? Go' is unable to qualify for volumediscounts on its gasoline? purchases, and therefore cannot sellgasoline for profit if the price is lowered.
Each new pump will cost
?$95 comma 00095,000
to? install, but will increase customer traffic in the storeby
10 comma 00010,000
customers per year.? Also, because the? "Gas n'? Go" would beselling its gasoline at no? profit, Darren plans on increasing theprofit margin on convenience store items incrementally over thenext five years. Assume a discount rate of
88
percent. The projected convenience store sales per customer andthe projected profit margin for the next five years are given inthe table below.
?????????????????????????????????????????????????????????????????????????????????????????????????????
LOADING...
Year | Projected Convenience Store Sales Per Customer | Projected Profit Margin |
1 | ?$66 | 1515?% |
2 | ?$7.507.50 | 2020?% |
3 | ?$1010 | 2525?% |
4 | ?$1212 | 3030?% |
5 | ?$1313 | 3535?% |
a. What is the NPV of the next five years of cash flows ifDarren had
fourfour
new pumps? installed?
NPVequals=?$nothing.
?(Enter
your response rounded to two decimal
places.?)
