Bill Plans to Open a Do-It-Yourself Dog Bathing Center in a Storefront

question 241

Multiple Choice

Bill plans to open a do-it-yourself dog bathing center in a storefront. The bathing equipment will cost $160,000. Bill expects the after-tax cash inflows to be $40,000 annually for seven years, after
Which he plans to scrap the equipment and retire to the beaches of Jamaica.
Assume the required return is 10%. What is the project's discounted payback period?

• A) three years
• B) four years
• C) five years
• D) six years
• E) seven years

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Definitions:

Marginal Cost

The variation in the overall cost of production that occurs with an increase of one unit in the quantity produced.

Pollution Abatement

Measures taken to reduce, control, or eliminate pollution from various sources to improve environmental health.

Diminishing Returns

Diminishing returns is an economic principle stating that as one factor of production increases while others are held constant, the additional output (returns) from the increased factor will eventually decrease.

Free Ride

Benefiting from a service or good without having to bear the cost or effort of obtaining it, usually in the context of public goods.