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) $1,000,000b) $780,000c) cannot be determined because inadequate information is given. d) the vertical axis crossing point cannot be calculated since the cash inflows are in perpetuity

correct option is D) The vertical axis crossing point cannot be calculated since the cash inflows are in perpetuity

Explanation:

given data

hair salon spends = $1,000,000

increase cash flow = $220,000 per year

to find out

what dollar value should the NPV profile cross the vertical axis

solution

we know that discount rate is = 0 %

as sum of cash flow is infinite

because cash flow = $220000

cash flow is here perpetual

so we can say that correct option is D) The vertical axis crossing point cannot be calculated since the cash inflows are in perpetuity

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