The owners of the Morning Glory Coffee Shop are considering spending $3,000 on a new cappuccino machine.They expect to increase revenues by $200 per year if they do.The current interest rate is 8 percent.Which of the following is true?
A)The rate of return on their investment is $200.
B)The rate of return on their investment is 5 percent.
C)The owners should not buy the machine.
D)The owners should buy the cappuccino machine if they have the $3,000 in cash,but not if they have to borrow the money.
E)The owners should buy the cappuccino machine regardless of whether they have the $3,000 in cash or not.

Question

Quizplus · Accepted Answer

The expected increase in revenue ($200 per year) is less than the cost of capital (8% of $3,000 = $240 per year), making the investment not financially viable.

The Owners of the Morning Glory Coffee Shop Are Considering