More Complex Example: You purchase a Burger King franchise on Western Avenue for $30,000, which has a salvage value at the end of its 8 year life of $2,000. Cash revenues of the franchise are expected at $20,000 per annum, while total cash costs are $14,000 per annum. Assume a discount rate of 15%. Question: Is purchasing the Flatlands Avenue Burger King franchise a good investment? Answer: NO!! Here is why.... Step 1: Figure out the PV of future cash flows PV = $6,000 * [1-(1/1.15 8 )]/(.15 +($2,000/1.15 8 )- $50,000 PV = ($6,000 * 4.487) +($2,000/3.059) PV = $27,578 Step 2: Figure out the NPV NPV = PV of Future Cash Flows – Initial Investment NPV = $27,578 - $30,000 NPV = ($2,422) Your NPV is NEGATIVE!!!!