Use the Information for the Question(s) Below

question 21

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) Cannot be determined because inadequate information is given.
• D) The vertical axis crossing point cannot be calculated since the cash inflows are in perpetuity.

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