Darren Mack owns the "Gas n' Go" convenience storeand gas station. After hearing a marketing lecture, herealizes that it might be possible to draw more customers tohis high-margin convenience store by selling his gasoline ata lower price. However, the "Gas n' Go' is unableto qualify for volume discounts on its gasoline purchases,and therefore cannot sell gasoline for profit if the price islowered.
Each new pump will cost $150,000 to install, but willincrease customer traffic in the store by 14,000 customers peryear. 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 8 percent. The projectedconvenience store sales per customer and the projected profitmargin for the next five years are given in the table below.
Darren Mack Owns The Gas N Go Convenience Store And Gas Station After Hearing A Marketing Lecture He Realizes Th 1 (61.34 KiB) Viewed 14 times
a. What is the NPV of the next five years of cash flows ifDarren had four new pumps installed?
NPV= $___
Year 1 2 3 4 5 4 Projected Convenience Store Sales Per Customer $6 $7.50 $9 $11 $12 Projected Profit Margin 20% 25% 30% 35% 40%
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