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IN 5 6 7 8 9 10 -50000+ - 100000 - 150000 -200000 Discount Rate The owner of a r salon spends $1,000,000 to renovat s premise
Use the information for the question(s) below. 150000 100000 50000 0 + AdN -50000 1nnnnn O A. 4.8% O B. 4.0% O c. 3.3% O D. 3


-100000 -150000 -200000 Discount Rate The owner of a hair salon spends $1,000,000 to renovate its premises, estimating that t
10 stimating that this will increase her cash flow by $220,000 per year. She constructs the above graph, which shows the net
100000 50000 01 NPV 5 6 7 8 9 10 -50000 -100000 -150000 -2000 O A. 4.8% OB. 4.0% O c. 3.3% OD. 3.0%
0 0
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Answer #1

The graph clearly shows that NPV becomes 0, when the discount rate touches 3.3%.

Hence, at the discount rate of 3.3%, her decision to renovate becomes untenable

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