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

question 148

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 15%. What is the project's PI? Should it be accepted?

• A) 0.88; yes
• B) 0.88; no
• C) 1.00; indifferent
• D) 1.04; yes
• E) 1.04; no

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Definitions:

Marginal Product

The additional output that is produced by using one more unit of a specific input, holding the levels of all other inputs constant.

Nonlabor Resources

Nonlabor resources refer to the materials, capital, land, and technology used in the production of goods and services, distinct from human labor.

Output

The total amount of goods or services produced by a business, industry, or economy during a given period.

Average Total Costs

The total cost of production (fixed plus variable costs) divided by the total quantity of output, indicating the cost per unit of output.