You Run a Small Bagel Shop and Are Considering Replacing

question 172

Multiple Choice

You run a small bagel shop and are considering replacing your four employees with automated machines that allow customers to buy their bagels without any human interaction. Of the following, the most difficult task you face in computing the NPV of this change is the:

• A) Estimation of the reduction in wages you will have from the decrease in work force.
• B) Estimation of the reduction in taxes you will get from the increase in depreciation.
• C) Estimation of the cost of purchasing the new equipment.
• D) Estimation of the cost of installing the new equipment.
• E) Estimation of the total change in sales that will result from the change.

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Definitions:

Rental Cost

The expense incurred when hiring or leasing a property, equipment, or other assets for a specified period.

Interest Rates

The cost of borrowing money or the return on investment for savings, usually expressed as a percentage.

Future Dollars

Money that is adjusted for its future value, accounting for inflation or interest earned over time.

Expected Rate of Return

The anticipated amount of profit or loss an investor expects to achieve on an investment.