Use the Following Information to Answer the Question(s)below

question 70

Multiple Choice

Use the following information to answer the question(s) below.
Two years ago,Krusty Krab Restaurant purchased a grill for $50,000.The owner,Eugene Krabs,has learned that a new grill is available that will cook Krabby Patties twice as fast as the existing grill.This new grill can be purchased for $80,000 and would be depreciated straight line over 8 years,after which it would have no salvage value.Eugene Krab expects that the new grill will produce EBITDA of $50,000 per year for the next eight years while the existing grill produces EBITDA of only $35,000 per year.The current grill is being depreciated straight line over its useful life of 10 years after which it will have no salvage value.All other operating expenses are identical for both grills.The existing grill can be sold to another restaurant now for $30,000.Krusty Krab's tax rate is 21%.
-If Krusty Krab's opportunity cost of capital is 12%,what decision should Krusty Krab take regarding the new grill?

• A)Do not install the new grill since NPV is approximately = - $16,183
• B)Install the new grill since NPV is approximately = + $16,183
• C)Install the new grill since IRR is approximately = 15%
• D)Do not install the new grill since IRR is less than 12%

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Definitions:

Decisional Balance

Weighing the pros and cons of changing versus not changing a behavior, used in motivational interviewing and behavioral change.

Stages of Change

A model outlining the steps an individual goes through when modifying behavior, including precontemplation, contemplation, preparation, action, and maintenance.

Motivational Interviewing

A counseling approach designed to help individuals find the motivation to make positive decisions and accomplish established goals.

Contemplation Stage

A phase in the process of change where individuals are aware of a problem and are considering making a change but have not yet committed to action.