Use the Information for the Question(s)below

question 82

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)4.8%
• B)4.0%
• C)3.0%
• D)3.3%

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Definitions:

Capital

Funds or assets that are used for investing in business operations to generate profitable returns.

WACC

Stands for Weighted Average Cost of Capital, a calculation of a firm's capital cost that weights each category of capital proportionately.

Capital Components

The elements that make up a company's capital structure, including equity, debt, and any hybrid securities.

Calculate

To determine the amount or number of something mathematically.