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)$1 000 000
B)$780 000
C)Cannot be determined because inadequate information is given.
D)The vertical axis crossing point cannot be calculated since the cash inflows are a perpetuity.

Question

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)$1 000 000 
B)$780 000 
C)Cannot be determined because inadequate information is given. 
D)The vertical axis crossing point cannot be calculated since the cash inflows are a perpetuity.

Quizplus · Accepted Answer

The Answer of 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)$1 000 000 
B)$780 000 
C)Cannot be determined because inadequate information is given. 
D)The vertical axis crossing point cannot be calculated since the cash inflows are a perpetuity.

Use the Information for the Question(s)below