Final answer:
A project's net present value (NPV) increases and looks more appealing if the discount rate decreases since this would raise the present value of the project's cash inflows. Stretching out the same amount of cash flows over a longer period makes the project less appealing. Therefore, only option a) is correct.
Step-by-step explanation:
When estimating the value of a planned project through present value (PV) calculations, several factors can make the project appear more financially appealing by increasing its net present value (NPV). Let's consider the options presented.
- a) The discount rate decreases: A decrease in the discount rate will increase the present value of the project's cash inflows, making it more appealing as the future cash flows are discounted at a lower rate.
- b) The cash flows are extended over a longer period of time, but the total dollar amount remains the same: This option would generally make a project less desirable, as the present value of cash flows received further in the future is less than those received sooner.
Therefore, the project would look more appealing with a lower discount rate, making the correct answer choice a). Increasing the discount rate, as per option c), would lower the present value, while extending the cash flows over a longer period without increasing the total dollar amount, option b), also makes the investment less attractive due to the time value of money. Thus, options d) and e) are incorrect because they include detrimental variations.