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Boulderado has come up with a new composite snowboard.Development will take Boulderado four years and cost $250,000 per year,with the first of the four equal investments payable today upon acceptance of the project.Once in production the snowboard is expected to produce annual cash flows of $200,000 each year for 10 years.Boulderado's discount rate is 10%.
-The NPV profile:
A)shows the payback period-the point at which NPV is positive.
B)shows the internal rate of return-the point at which NPV is zero.
C)shows the NPV over a range of discount rates.
D)B and C are correct.

Question

Quizplus · Accepted Answer

The NPV profile shows both the internal rate of return (IRR) and the NPV over a range of discount rates. The point where NPV is zero is the IRR, and the range of discount rates helps to determine the sensitivity of the project's profitability to changes in the discount rate. Therefore, both options B and C are correct. The NPV profile does not directly show the payback period, so option A is incorrect.

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