A Convenience Store Owner Is Contemplating Putting a Large Neon

question 102

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 cash flows after two years are greater than the initial investment.
• C)Yes, since the value of the cash flows into the store, in present dollars, is greater than the initial investment.
• D)No, since the value of the cash flows over the first two years is less than the initial investment.

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Definitions:

Confidence Interval

A range of values, calculated from a set of data, that is likely to include the true population parameter with a certain confidence level.

Sample Size

The number of individual observations or data points used in a statistical analysis.

Degrees of Freedom

The total of unique values or figures that may be allocated to a statistical distribution.

Confidence Interval

A range of values, derived from statistical analysis, that is believed to contain the true value of an unknown population parameter with a specified level of certainty.