The Lunch Counter Is Expanding and Expects Operating Cash Flows

question 37

Multiple Choice

The Lunch Counter is expanding and expects operating cash flows of $49,500 a year for nine years as a result. This expansion requires $36,500 in new fixed assets. These assets will be worthless at the end of the project. In addition, the project requires $2,200 of net working capital throughout the life of the project. What is the net present value of this expansion project at a required rate of return of 15.6 percent?

• A) $194,736.05
• B) $201,033.33
• C) $192,536.05
• D) $188,569.91
• E) $193,132.81

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Definitions:

Retrospective Adjustment

An adjustment applied to the financial statements of prior periods to correct an error or to reflect a change in accounting policy as if that policy had always been applied.

Share Options

Rights granted by a company to its employees or executives to purchase shares of the company's stock at a predetermined price.

Exercise Price

The predetermined price at which an option can be exercised, typically to buy or sell an underlying financial asset.

AASB 133

Refers to the Australian Accounting Standards Board standard on Earnings per Share, outlining how to calculate and present earnings per share in financial statements.