The South End bookstore has an annual profitof $170,000.

Chapter , Problem 8-6

(choose chapter or problem)

The South End bookstore has an annual profitof $170,000. The owner is considering opening asecond bookstore on the north side of the campus.He can lease an existing building for 5 years withan option to continue the lease for a second 5-yearperiod. If he opens the secondbookstore,he expectsthe existing store will lose some business that willhe gainedby The North End, the new bookstore.Itwill take $500,000 of store fixtures and inventory toopen The North End. He believes that the two storeswill have a combined profit of $260,000 a year afterall the expenses of both stores have been paid.The owners economic analysis is based on a 5-yearperiod. He will be able to recover this $500,000investment at the end of 5 years by selling the storefixtures and inventory.(a)Construct a choice table for interest rates from0% to 100%.(b)The owner will not open The North End unlesshe can expect a 15% rate of return. What shouldhe do?