A Communications Company Installs Cable to Service a New Area

A communications company installs cable to service a new area.They estimate the cost of installing the cable is $17 million,but they will receive a cash flow of $1.4 million per year indefinitely.The net present value (NPV) of this investment at a cost of capital of 6.5% indicates that this is a worthwhile investment.By how much would the cost of capital have to increase for the NPV to be zero?

A) 0.83%
B) 1.74%
C) 3.25%
D) 5.37%
E) 8.24%

Correct Answer:

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