Question

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 four years. If the discount rate is 5.3%, were the owners correct in making the decision to install donut makers?

Answer 1

No, the owner is incorrect.

Step-by-step explanation:

To determine whether the owner is the correct or not, we need to perform Net Present value of the given data. Given,

Initial investment = $25,000,000

Cash inflow = $11,000,000

Discount rate = 5.3%.

The following image shows the result (Manually).