Use the Information for the Question(s) Below

question 64

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. If her discount rate is 6%, should she accept the project?

• A) Yes, because the NPV is positive at that rate.
• B) No, because the NPV is negative at that rate.
• C) No, because the NPV is positive at that rate.
• D) Cannot be determined from the information given.

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Definitions:

IPO

An Initial Public Offering (IPO) is the process through which a private company goes public by selling its shares to the public for the first time.

Allocation of Shares

The process of distributing shares of stock among investors.

Oversubscribed

A situation in which the demand for an IPO or a new issue of securities exceeds the number of shares available.

Rights Offering

A method by which a company raises capital through issuing new shares to existing shareholders at a predetermined price for a fixed period.