After ten years as a general auto mechanic in a local garage, Joe decides he is tired of working for others, especially since business is typically slow and he works partially on commission. So, he decides to open his own garage. After estimating the cash flows for his new garage, he finds a large, positive NPV. Which of the following is most likely true about his analysis?
A) The discount rate he used must be too low.
B) Unless he can find a true source of value in his new venture, he probably made a mistake in estimating his cash flows.
C) He has likely been overly optimistic about the future and has underestimated future cash flows.
D) His estimates of initial outlays must be off.
E) His analysis is probably correct provided there is adequate competition in the auto repair business.

Question

Quizplus · Accepted Answer

Joe's large, positive NPV suggests he may have been overly optimistic in estimating his cash flows, especially given his background of working in a slow business environment. This optimism could lead to an overestimation of the benefits without identifying a unique value proposition for his new venture.

After Ten Years as a General Auto Mechanic in a Local