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Lenoras creates exquisite gowns for special occasions on a prepaid basis only. The required return is 12.5 percent. The estimate for one gown order has
Lenoras creates exquisite gowns for special occasions on a prepaid basis only. The required return is 12.5 percent. The estimate for one gown order has cash flows of $165,000 in year 0 and -$188,000 in year 1. Which of these statements correctly applies to this order? Please show work to explain the answer |
The gown should not be sold for $165,000. |
As long as the selling price is $164,819 or higher, the gown should be sold. |
The gown must be sold for a minimum price of $167,111 to earn the required return. |
The IRR decision rule cannot be applied to this project. |
Insufficient information is provided to make a decision based on IRR. |
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