Final answer:
The NPV of KFC with the expected profit of $15,000 in Period 1 and $20,800 in Period 0, using a discount rate of 20%, is $33,300. This calculation includes discounting the Period 1 profits back to present value and adding it to the Period 0 profit which is already in present terms.
Step-by-step explanation:
The question involves the calculation of Net Present Value (NPV) for expected profits of a popular fast-food company, KFC. To calculate the NPV, we need to discount the future profits back to their present value using the given discount rate. The discount rate provided is 20%, and we have profits for two periods, $20,800 for Period 0 and $15,000 for Period 1. The profit of Period 0 does not need to be discounted as it is already in present terms. The profit for Period 1 needs to be discounted back to the present value.
Now let's calculate the present value (PV) of the profit for Period 1:
PV$15,000 in Period 1 = $15,000 / (1 + 0.20)¹ = $12,500.
Since the profit in Period 0 is already in present value terms, we add the two together:
NPV = PV Period 0 profit + PV Period 1 profit
= $20,800 + $12,500
= $33,300.
The correct answer to the question, 'What is the NPV if KFC expected profit in Period 1 is $15,000, and their profit in Period 0 is $20,800?', is $33,300, which corresponds to option (D).