A restaurant is contemplating replacing its service staff with an electronic ordering process.Installing computers at each table will cost $150,000,but is expected to generate a cost savings of $40,000 per year for the next 10 years,when the computers will need to be replaced.If the restaurant has a cost of capital of 10%,what is the NPV of this investment?
A)-$90,000
B)$250,000
C)$95,783
D)-$150,000
E)$213,636

Question

Quizplus · Accepted Answer

The NPV can be calculated as follows:

Initial cost = $150,000
Annual savings for 10 years = $40,000
Cost of capital = 10%

NPV = -150,000 + 40,000 * ((1 - (1 + 0.10)^-10) / 0.10)
NPV = -150,000 + 40,000 * 6.1446
NPV = $95,783

Therefore, the NPV of this investment is positive, indicating that it is a worthwhile investment. The best choice is option C.

A Restaurant Is Contemplating Replacing Its Service Staff with an Electronic