Transcribed Image Text
USE THE INFORMATION BELOW TO ANSWER THE FOLLOWING 4QUESTIONSErma’s Beauty Supply is considering expanding theexisting store. Erma wants to lease the office space next door toher business. Erma must spend, $120,000 on equipment to expand. Theequipment is expected to have a zero-salvage value and will beretired in 8 years. Erma expects to increase networking capital by$8,000 right now if she goes through with the expansion. Erma spent$12,000 last month on a survey of the area surrounding the shop tosee if there was sufficient demand for a larger store. Ermaestimates she will increase revenues by $110,000 per year in thenew store for eight years. The direct expenses incurred to makethose sales are $78,000, including rent. The lease she isconsidering signing is for 8 years. She will liquidate the $8,000networking capital when the lease is complete in 8 years. Erma’sBeauty Supply pays 40.0% in taxes and has a cost of capital of9.0%.38. How much does Erma need to expand her business atT=0?39. Based on this information, the project’s operatingcash flow in each of the first seven years is$_______?40. Based on this information, the project’s terminalyear (year 8) total cash flow is $_______?41. What is Erma’s NPV if she decides to expand thebusiness?