Use the Information for the Question(s)below

question 46

Multiple Choice

Use the information for the question(s) below.
Food For Less (FFL) ,a grocery store,is considering offering one hour photo developing in their store.The firm expects that sales from the new one-hour machine will be $150,000 per year.FFL currently offers overnight film processing with annual sales of $100,000.While many of the one-hour photo sales will be to new customers,FFL estimates that 60% of their current overnight photo customers will switch and use the one-hour service.
-Suppose that of the 60% of FFL's current overnight photo customers,half would start taking their film to a competitor that offers one-hour photo processing if FFL fails to offer the one-hour service.The level of incremental sales in this case is closest to:

• A)$60,000.
• B)$150,000.
• C)$90,000.
• D)$120,000.

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Definitions:

Discount Rate

The interest rate used to determine the present value of future cash flows in discounted cash flow analysis; also refers to the interest rate charged by central banks on loans to commercial banks.

Cash Flows

The complete sum of cash inflows and outflows within a corporation, severely impacting its liquidity stance.

Present Value

The present-day financial assessment of a sum of money to be received later or a series of cash flows, based on a specific rate of return.

Discount Rate

In discounted cash flow analysis, the Discount Rate refers to the interest rate employed to ascertain the present value of future cash flows.