Use the Information for the Question(s)below

question 59

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 dollar value should the NPV profile cross the vertical axis?

• A)$780,000
• B)$1,000,000
• C)$220,000
• D)The vertical axis crossing point cannot be calculated since the cash inflows are a perpetuity.
• E)Cannot be determined because inadequate information is given.

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