A Communications Company Installs Cable to Service a New Area

question 108

Multiple Choice

A communications company installs cable to service a new area.They estimate the cost of installing the cable is $17 million,but they will receive a cash flow of $1.4 million per year indefinitely.The net present value (NPV) of this investment at a cost of capital of 6.5% indicates that this is a worthwhile investment.By how much would the cost of capital have to increase for the NPV to be zero?

• A)0.83%
• B)1.74%
• C)3.25%
• D)5.37%
• E)8.24%