The Owner of a Video Store Is Considering Remodeling the Store

Essay

The owner of a video store is considering remodeling the store in order to carry a larger inventory. The cost of remodeling and additional inventory is $43 200. The expected increase in net profit is $7000 per year for the next 3 years and $10 000 each year for the following 7 years. After ten years, the owner plans to retire and sell the business. She expects to recover the additional $40 000 invested in inventory but not the $43 200 invested in remodeling. Compute the rate of return.