Stephanie’s Hardware Store
Stephanie has a hardware store and she is deciding whether or not to buy Adler’s Hardware store on Wickendon Street. She can buy it for $400,000; however it would take one year to renovate, implement her computer inventory system, etc.
The next year she expects to earn $600,000 if the economy is good and only $200,000 if the economy is bad. She estimates a 65% probability of a good economy and a 35% probability of a bad economy. If she doesn’t buy Adler’s she knows she will get $0 additional profits.
Taking the time value of money into account, find the NPV of the project with a discount rate of 10%