Use the Table for the Question(s)below

question 76

Multiple Choice

Use the table for the question(s) below.
-Visby Rides, a limousine hire company, is considering buying some new luxury cars. After extensive research, they come up with the above estimates of free cash flow from this project. Visby learns that a competitor is thinking of offering similar services, thus reducing Visby's sales. By how much could sales fall before the net present value (NPV) was zero, given that the cost of capital is 10%, and that cost of goods sold is 45% of revenues?

• A)by 24.5%
• B)by 15.5%
• C)by 28.1%
• D)by 10.8%

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Definitions:

Ending Capital

The amount of capital a company or individual has at the end of a financial period, after all transactions have been accounted for.

Income Summary

An account in the general ledger used to transfer the balances of temporary accounts to permanent accounts at the end of an accounting period.

Capital

Financial assets or the financial value of assets, such as cash and goods, used by a business to generate income or wealth.

Net Loss

The amount by which expenses exceed revenues over a specific period, indicating that a company has spent more than it has earned.