Blossoms Inc., a local florist, is considering replacing its current refrigerator used for storing flowers with a larger one. The estimated cost of the new refrigerator will be $30,000. Using a discount rate of 15%, the company calculates a net present value for the new refrigerator of $6,000. Based on this information, which of the following statements is true?

Question

Quizplus · Accepted Answer

The net present value is calculated based on the estimated cost of the new refrigerator, which is $30,000. If the actual cost ends up being greater than $30,000, the net present value will decrease and may become negative if it exceeds $36,000. Option B is incorrect because if the actual cost ends up being less than $30,000, the net present value will increase and remain positive. Option C is incorrect because the actual rate of return will depend on the actual cost and the actual cash flows generated by the investment. Option D is incorrect because even if the actual cost ends up being less than $30,000, the company should still evaluate the investment based on the actual cash flows and the updated net present value calculation.