Hi Expert...Can someone help me solve this problem. I was able to solve for the

Question

Hi Expert...Can someone help me solve this problem. I was able to solve for the number of years but not sure how to solve for the TVOM??

PizzaPizza has finally narrowed down to two college towns, Collegeville and University City, to open their new location this August, just in time for the fall semester. The Collegeville location requires an initial investment of $126,000, whereas University City requires $185,000. From the student population and the competition, the finance people feel the revenue at Collegeville will be $48,000 a year and the revenue at University City will be $56,000. Assuming a hurdle rate of 15%.

1.How long it will take to get the investment back for each location?

2. Include the time value of money.

Thanks in advance.

Explanation / Answer

For College ville

Intitial Investment = 126000

Cashflows per year = 48000

to calculate the payack period =

we have to calculate when cashflows will total t0 126000

Hence the payabck period lies between 2 qand 3

= 30000/48000 =0.625

Hence total would be 2+0.625 =2.625

Similrily for University City

Total Investment = 185000

Cahsflows = 56000

= 17000/56000 = 0.30

Therfore payaback is 3.3

For discounting

Hence payackback for college would be between 3 qand 4

= 3.59

Hence payback period would in between 4.90

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