The Owner of a Number of Gas Stations Is Considering

question 80

Multiple Choice

The owner of a number of gas stations is considering installing coffee machines in his gas stations.It will cost $280,000 to install the coffee machines,and they are expected to boost cash flows by $120,000 per year for their five-year working life.What must the cost of capital be if this investment has a profitability index of 1?

• A)1.06%
• B)2.34%
• C)4.69%
• D)5.28%
• E)3.67%

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Definitions:

Inflation Rates

The rate at which the general level of prices for goods and services is rising, eroding purchasing power over time.

Interest Rates

The cost of borrowing money, expressed as a percentage of the amount borrowed, charged by lenders to borrowers.

Trade Surpluses

A situation where a country's exports exceed its imports during a specific period, reflecting a positive balance of trade.

Realized Gain

Gain that results from the sale of an asset or investment, which has turned into actual cash or an equivalent.