It Will Cost $3,000 to Acquire a Small Ice Cream

question 11

Multiple Choice

It will cost $3,000 to acquire a small ice cream cart. Cart sales are expected to be $1,400 a year for three years. After the three years, the cart is expected to be worthless as that is the expected remaining life of the cooling system. What is the payback period of the ice cream cart?

• A) 0.83 years.
• B) 1.14 years.
• C) 1.83 years.
• D) 2.14 years.
• E) 2.83 years.

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Definitions:

NPV

A financial analysis approach that determines the present value of an investment's expected cash flows minus its initial cost, used to evaluate the attractiveness of projects.

Net Income

The net income of a company, calculated by deducting all costs and taxes from its total revenues.

Accounting Break-Even

The sales level that results in zero project net income.

Forecasting Risk

The possibility that errors in projected cash flows lead to incorrect decisions.