Bruno's Lunch Counter Is Expanding and Expects Operating Cash Flows

question 36

Multiple Choice

Bruno's Lunch Counter is expanding and expects operating cash flows of $26,000 a year for 4 years as a result. This expansion requires $39,000 in new fixed assets. These assets will be worthless at the end of the project. In addition, the project requires $3,000 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 16 percent?

• A)$18,477.29
• B)$21,033.33
• C)$28,288.70
• D)$29,416.08
• E)$32,409.57

---

Definitions:

Marginal Revenue

The increased earnings resulting from the sale of one extra unit of a good or service.

Marginal Cost

The increased cost resulting from the production of an additional unit of a good or service.

Economic Profit

The difference between a firm's total revenues and its total costs, including both explicit and implicit costs, indicating the actual profitability of the company beyond just accounting profit.

Purely Competitive

A market structure characterized by many buyers and sellers, homogeneous products, and no barriers to entry or exit.