Tennessee Fried Chicken Is Evaluating a Proposal to Open a Fast

question 47

Multiple Choice

Tennessee Fried Chicken is evaluating a proposal to open a fast food restaurant in Westphalia.The restaurant will cost $14.5 million to open.Expected cash flows are $4 million per year for the first five years.At the end of 5 years,the government of Westphalia will either revoke TFC's permit and the restaurant will close,or renew the permit indefinitely.In that case,assume that the $4 million turns into a perpetuity.There is a 30% chance the permit will be revoked and a 70% chance it will be renewed.Compute the expected NPV of the project.Use a discount rate of 12%.

• A)$18.83 million
• B)($.08 million)
• C)$13.16 million
• D)$9.43 million

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