The Owners of a Chain of Fast-Food Restaurants Spend $25

question 70

Multiple Choice

The owners of a chain of fast-food restaurants spend $25 million installing donut makers in all their restaurants. This is expected to increase cash flows by $11 million per year for the next five years. If the discount rate is 5.3%, were the owners correct in making the decision to install donut makers?

• A) No, as it has a net present value (NPV) of -$4.45 million.
• B) No, as it has a net present value (NPV) of -$2.22 million.
• C) Yes, as it has a net present value (NPV) of $13.34 million.
• D) Yes, as it has a net present value (NPV) of $22.23 million.

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Definitions:

Zymogen Granules

Intracellular storage granules found in the pancreas and other glands, containing inactive enzyme precursors that can be activated when needed.

Salivary Amylase

An enzyme found in saliva that starts the process of breaking down starches into sugars during digestion.

Pyloric Pump

A mechanism involving the pylorus, the region of the stomach that connects to the small intestine, which regulates the passage of digestive contents into the intestine.

Pyloric Opening

The opening from the stomach into the duodenum, regulated by the pyloric sphincter to control the passage of digested food.