Question 1 Belle Ltd runs a chain of hairdressing salons. The company's directors, Anne and Barry, are considering a pro

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Question 1 Belle Ltd Runs A Chain Of Hairdressing Salons The Company S Directors Anne And Barry Are Considering A Pro 1 (95.94 KiB) Viewed 30 times

Question 1 Belle Ltd runs a chain of hairdressing salons. The company's directors, Anne and Barry, are considering a proposal to add sunbeds to their salons. They have surveyed staff and customers and have found that 45% of their existing customers would consider using the facilities. On the basis of this finding they have constructed a set of costings and revenue projections. The sunbeds would cost €180,000 in total to buy and install; they would have an estimated useful life of five years after which they could be sold for €15,000 in total. Anne and Barry estimate that the het cash inflow arising each year from the sale of time on the sunbeds would be €46,000. The €180,000 will be lent to the company by the two directors; it is the proceeds of the sale of their second home in Italy. If the money is not put into the sunbed project it would be invested in the opening of a new salon. The average yield from a salon is 14% per year, and the directors have decided to use this as the cost of capital in appraising the proposed sunbed investment. Required: (a) Calculate the NPV of the sunbed investment project. (12 marks) (b) Calculate the IRR of the sunbed investment project. (12 marks) (c) Advise the directors on whether or not they should make the investment, considering any other relevant factors that might have a bearing in the decision. (6 marks) Total 30 Marks