Decision Trees Show the Profit Outcomes for the Plans for Two

question 15

Multiple Choice

Decision trees show the profit outcomes for the plans for two doughnut stores in two different locations in a strong and a weak economy for the future. If the investor interested in building a store is optimistic, in which location should she build?

• A) She should build Store 1, because it has a lower minimum profit.
• B) She should build Store 2, because it has a greater maximum profit.
• C) She should build Store 1, because it has a greater maximum profit.
• D) She should build Store 2, because it has a greater minimum profit.

Understand the concept of incremental cost approach in capital budgeting.

Recognize the importance of post-audit in capital budgeting and how it can provide feedback on the investment's performance.

Understand the effect of tax implications on cash flows from capital investments.

Understand the concepts of payback method and time value of money in capital budgeting decisions.

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Definitions:

Resource Extraction

The process of retrieving natural resources from the Earth, such as minerals, fuels, and timber, for human use.

Temptation

An urge or desire to perform an action that may be enjoyable in the short term but is generally considered unwise or detrimental in the long run.

User Cost

User cost comprises the costs associated with the use of a product or service, including wear and tear, maintenance, and the opportunity cost of forgone alternatives.

Extract

To remove or obtain a substance from a source through a process.