Pierre’s Hair Salon is considering opening a new location in French Lick, Califo

Question

Pierre’s Hair Salon is considering opening a new location in French Lick, California. The cost of building a new salon is $306,200. A new salon will normally generate annual revenues of $63,760, with annual expenses (including depreciation) of $40,900. At the end of 15 years the salon will have a salvage value of $74,800.

Calculate the annual rate of return on the project.

Pierre's Hair Salon is considering opening a new location in French Lick, California. The cost of building a new salon is $306,200. A new salon will normally generate annual revenues of $63,760, with annual expenses (including depreciation) of $40,900. At the end of 15 years the salon will have a salvage value of $74,800. Calculate the annual rate of return on the project. (Round answer to 0 decimal places, e.g. 125.) Annual rate of return 0 0

Explanation / Answer

Annual rate of return = 7% approx

Annual rate of return = Average cash Inflow / Initial investment

= $22,860 / $306,200

= 7.46% or 7.00 % Approx

Cash Inflow = Annual revenues - Annual expenes

= $ 63,760 - $40,900

= $22,860

Since Profit will remain same for 15 years so Average Cash Inflow for 15 year will remain same as $22,860

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