A New Grocery Store Cost $50 Million in Initial Investment

question 15

Multiple Choice

A new grocery store cost $50 million in initial investment. It is estimated that the store will generate $5 million after-tax cash flow each year for five years. At the end of 5 years it can be sold for $60 million. What is the NPV of the project at a discount rate of 10%?

• A) $2.42 million
• B) $10 million
• C) $6.21 million
• D) None of the above

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Definitions:

Quality Costs

Represents the expenses associated with preventing, detecting, and correcting defective work in products or services.

Defect Rate

A measure of the frequency at which errors or flaws occur in a manufacturing process or a product.

Quality Performance

The degree to which a product or service meets customer expectations and industry standards.

Internal Failure Costs

Costs incurred to rectify defects found before the delivery of a product to the customer, part of quality control expenses.