Buffalo Drumsticks Is Evaluating a Proposal to Open a Restaurant

question 85

Multiple Choice

Buffalo Drumsticks is evaluating a proposal to open a restaurant in Bermuda.The restaurant will cost $29 million to open.Expected cash flows are $8 million per year for the first five years.At the end of 5 years,the government of Bermuda will either revoke BD's permit and the restaurant will close,or renew the permit indefinitely.If the permit is revoked,the building and equipment can be sold for $10,000,000.If the permit is renewed,assume that the $8 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)$37.66 million
• B)($15.16 million)
• C)$28.02 million
• D)$18.86 million

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Definitions:

Emotional Difference

Variability in individuals' emotional responses or expressions, which can be influenced by personality, culture, or situation.

Anger

An emotional state that varies in intensity from mild irritation to intense fury and rage, often as a response to perceived wrongs.

Psychological Disorder

A pattern of behavioral or psychological symptoms that impact multiple life areas and/or create distress for the person affected.

Antisocial Personality

A personality disorder characterized by a long pattern of disregard for, or violation of, the rights of others.