Info

Increased Revenues

$500,000

$550,000

$605,000

$665,500

$732,050

Operating Margin

10.00%

10.00%

10.00%

10.00%

10.00%

Operating Income

$50,000

$55,000

$60,500

$66,550

$73,205

Operating Income after Taxes

$29,000

$31,900

$35,090

$38,599

$42,459

PV of Cash Flows @ 12.14%

$25,861

$25,369

$24,886

$24,412

$23,947

The present value of the incremental cash flows generated for the bookstore as a consequence of the cafe is $124,474. Incorporating this into the present value analysis yields the following:

Net Present Value of Cafe = - $86,413 + $ 124,474 = $38,061 Incorporating the cash flows from the synergy into the analysis, the cafe is a good investment for Bookscape.

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