Question: Mark is the CEO Mrs. T's Pierogis in Pottsville, PA. He has an opportunity to buy a food truck business to open for business on campus at Stockton. He will have an exclusive license to operate the only food truck on campus and wants to use this an an investment. He plans to buy the truck and hire people to staff it. While the truck is expected to build great brand awareness, Mark wants it to also be a good financial investment based on food sales and profit from the truck. Mark's team came up with the financial projections shown below:
|
Year
|
Profit
|
|
2017
|
$(50,000.00)
|
|
2018
|
$(30,000.00)
|
|
2019
|
$(10,000.00)
|
|
2020
|
$5,000.00
|
|
2021
|
$12,500.00
|
|
2022
|
$20,000.00
|
|
2023
|
$25,000.00
|
|
2024
|
$35,000.00
|
|
2025
|
$40,000.00
|
|
2026
|
$50,000.00
|
a) Based on the above, what is the internal rate of return Mark can expect from the food truck? Carry answer to two decimal places.
b) Ron is a financially conservative guy. He is using 10% as the "hurdle rate" for a go/no go decision. Based on the profit projections, would he decide to implement food truck?