Exquisite growth on special occasions on prepaid basis
Financial Management
Lenora’s 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 discuss 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.
