Question
a) An auto-parts company is deciding whether to sponsor a racing team for a cost of $100000. The sponsorship would last for 5 years and
a) An auto-parts company is deciding whether to sponsor a racing team for a cost of $100000. The sponsorship would last for 5 years and is expected to increase cash flows by $400000 per year. If the discount rate is 5%, what will be the change in the value of the company if it chooses to go ahead with the sponsorship? (4 decimal places)
b) The owners of a chain of fast-food restaurants spend $4000000 installing donut makers in all their restaurants. This is expected to increase cash flows by $800000 per year for the next 6 years. The discount rate is 5%. What is the net present value of installing the donut makers? (4 decimal places)
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