Use the Information for the Question(s)below

question 36

Multiple Choice

Use the information for the question(s) below.
-The owner of a hair salon spends $1,000,000 to renovate its premises,estimating that this will increase her cash flow by $220,000 per year.She constructs the above graph,which shows the net present value (NPV) as a function of the discount rate.At what discount rate does her decision to renovate become untenable?

• A)3.0%
• B)3.3%
• C)4.0%
• D)4.8%
• E)5.0%

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Definitions:

Capital Leases Payable

The liability account that records the present value of future lease payments for assets obtained through capital leases.

Unearned Revenues

Money received by a company for goods or services yet to be delivered or performed.

Working Capital

The difference between a company's current assets and current liabilities, indicating the short-term financial health of the business.

Current Assets

Assets that are expected to be converted into cash, sold, or consumed within one year or the business cycle, whichever is longer.