The Owners of a Chain of Fast-Food Restaurants Spend $28

question 57

Multiple Choice

The owners of a chain of fast-food restaurants spend $28 million installing donut makers in all their restaurants.This is expected to increase cash flows by $10 million per year for the next five years.If the discount rate is 6.5%,were the owners correct in making the decision to install donut makers?

• A)No,as it has a net present value (NPV)of -$2.25 million.
• B)No,as it has a net present value (NPV)of-1.68 million.
• C)Yes,as it has a net present value (NPV)of $8.74 million.
• D)Yes,as it has a net present value (NPV)of $13.56 million.

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Definitions:

Contract

A legally binding agreement between two or more parties that outlines obligations and provisions for the parties involved.

Postbox Rule

A legal doctrine that states that an acceptance of an offer becomes effective when it is posted, not when it is received by the offeror.

Modern Business

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Freedom Of Contract

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