A friend asked you to help him determine the operating cash flow for a new drink

Question

A friend asked you to help him determine the operating cash flow for a new drink business at padre island for spring break and he needs to take the NPV analysis to a bank for financing. He gives you the following numbers and asks which ones should be included in the NPV analysis: Labor = $1,000; utilities = $1,000; Expected Interest on Loan = $1,000; Trip to padre Island last year to talk business with a sail boat rental agency (where he got the idea for the drink business) = $500; insurance = $1,000; building rental = $1,000; other operating expenses = $1,000; You say ____ because ____. A. exclude interest; it is included in the discount rate B. exclude trip; the money has already been spent on another project c. exclude building rental; the business would need to be put someplace an it is a wash. d. both A and B

Explanation / Answer

A. exclude interest; it is included in the discount rate

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