A Convenience Store Owner Is Contemplating Putting a Large Neon

question 121

Multiple Choice

A convenience store owner is contemplating putting a large neon sign over his store.It would cost $50,000,but is expected to bring an additional $24,000 of profit to the store every year for five years.Would this project be worthwhile if evaluated using a payback period of two years or less and if the cost of capital is 10%?

• A)Yes,since it will pay back its initial investment in two years.
• B)Yes,since the value of the cash flows into the store,in present dollars,are greater than the initial investment.
• C)Yes,since the cash flows after two years are greater than the initial investment.
• D)No,since the value of the cash flows over the first two years are less than the initial investment.
• E)Yes,since the NPV is positive.

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Definitions:

Federal Income Tax

The annual income of individuals, corporations, trusts, and other legal entities is subject to a tax imposed by the IRS.

FICA Tax Rate

The combined percentage rate for Social Security and Medicare taxes that both employees and employers must pay based on earned income.

Hourly Wage

Compensation based on the number of hours worked, typically paid to employees on an hourly rather than salary basis.

FICA Tax

In the United States, mandatory deductions from employees' salaries to support Social Security and Medicare, known as federal taxes.