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

question 126

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.
• E)No,as it has a net present value (NPV)of-1.14 million.

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Definitions:

Unconformity

An interface between distinct groups of strata that shows a phase of erosion or no sediment accumulation.

Desert Varnish

A thin, dark film or coating of iron and manganese oxides, silica, and other materials; formed by prolonged exposure at the surface; synonym rock varnish.

Desert Pavement

A natural concentration of pebbles and other rock fragments that mantle a desert surface of low relief.

Cross-Cutting Relations

A geological principle stating that any geologic feature that cuts across another feature must be younger than the feature it cuts.